Car finance companies must all complete credit checks, and affordability assessments when deciding who they should approve. I have worked for a bad credit car finance lender, a car finance broker, and a car finance specialist dealer, and understand the key things that car finance providers focus on when making their lending decisions.
How important is my credit score?
Your credit score is not the be-all-and-end-all when it comes to getting approved for car finance, and multiple factors can influence your credit score quite significantly. Every fair and bad credit car finance provider that lends money in the UK uses their own credit scoring system, so even if you have a low credit score on ClearScore, Experian, or Credit Karma, it is still possible that you could be approved for car finance.
What do I need to do to get approved for bad credit car finance?
Firstly, you need to make sure you are eligible to apply, and have lived in the UK for the last 3 years, and that you have a full driving licence.
The finance companies will be looking at the following aspects of your application to help them make their lending decisions:
Your credit file
Firstly, the finance companies will want to make sure you are currently in a financial position to take out car finance. If you are currently in arrears, over your credit limit, or overdraft limit, then most finance companies would automatically reject your application.
Secondly, they will look for signs of ‘intent’ from your credit history. This means that they will be looking for any finance agreements you’ve had in the past to see whether you’ve ever managed to maintain any previous credit agreements.
Thirdly, they will need to make sure you’re not currently bankrupt, or under an Insolvency Voluntary Arrangement, to see whether you would need permission to be able to take out finance.
Your home and job information
Although getting a new job can often be a positive experience, if you get a pay rise and promotion, it is also one of the biggest reasons for non-payment of car finance agreements. Generally speaking, the more job stability you have, the better chance of getting a car finance approval.
Similarly with address history, if you have recently moved address, this can disrupt your credit file a lot as you may not be on the electoral register, your credit may not all be registered to your current address, and moving house incurs a lot of costs, which also affect peoples’ ability to pay their car finance.
Your income and outgoings
All finance companies must complete an affordability assessment; this must take into account:
Your income
Your existing financial commitments
A cost of living (rent, bills, day to day expenses)
Historic debt
Most finance companies will generate their own figure for the ‘cost of living’ and also use a calculation to determine how much you owe in relation to your ‘historic debt’. They will want to make sure you can comfortably afford the repayments for any car finance agreement they offer you.
I’ve been declined for car finance already; how can I improve my chances?
If you’ve applied for car finance at a bad credit car finance dealer already, it is likely that you will be declined if you apply to other similar dealers, or brokers. You would need to make some changes to your credit report in order to obtain a car finance approval.
These are the best changes you can make to improve your chance of a bad credit car finance approval:
Register to vote
By registering to vote, this is also seen as a proof of address by finance companies and they will use it to trace your full address history. If you are not on the electoral register, or there are gaps in your electoral register trace historically, this will be seen as a negative factor by finance companies, so ensuring you are always on the electoral register is a really important factor when trying to obtain a car finance approval.
Catch up any arrears
If you are in current arrears with any of your current creditors, this is seen as a major red flag by car finance providers. They will see this as a sign that you are struggling to maintain your existing financial commitments, so offering you any further finance would be irresponsible of them.
If you are in dispute with any creditors, it will be much better for you to maintain your payments whilst the dispute is resolved. If not, you could risk a default, which would stay on your credit file for 6 years.
So, if you can catch up any arrears, maybe with small overpayments if you are in a tough spot at the moment, or in full if you can afford to, this would make a big difference to your chance of a car finance approval. The same applies to being over your overdraft, or credit limits on catalogues, credit cards etc.
Make sure your credit is registered to the correct address
Similarly to the electoral register, finance companies will use the address that credit is registered to to establish your credit trace at your current and previous addresses. If your credit is all registered at your current address, including any credit you’ve defaulted on, finance companies will see that you’ve not hidden from your past problems and will see this as a positive factor when reviewing your finance application.
Reduce or repay any defaults
Finance companies will see 2 balances for any defaults or CCJs on your credit file: the balance when you defaulted, and the balance now. If the balance now is lower than the balance when you defaulted, finance companies will see this as a positive factor.
If you take responsibility for any old debt you have, there is also less chance that it comes back to bite you at a later date. If you have a default, the finance company could apply for a County Court Judgement against you at any time to try and reclaim their money which could ruin any positive impact you are having on your credit file elsewhere. If you are paying even small amounts to any old defaults, they are likely to leave you to continue that rather than trying to pursue the whole balance.
Wait for the changes to take effect
If you register with Credit Karma for free, you will be sent your credit report on a regular basis, so you should be able to see the fruits of your labours. Not all changes happen instantly, so you may need to be patient once you’ve made changes.
Finance companies will also generally automatically decline any application they have rejected in the past 30 days, so there is a chance you could be getting declined because of applying too much rather than because of your credit report.
Finance companies also often work on a scale whereby the rate you are offered will vary depending on how they view your credit file, so it is often prudent to wait until you’ve made as much impact as you can before applying for car finance.
Hopefully this advice will help you improve your credit score as well as improving your chances of a bad credit car finance approval.
Get A Better Car Nottingham
The article was written by Duncan Twigg, Director at Get A Better Car – Nottingham’s Bad Credit Car Finance Specialists. Get A Better Car work with every fair and bad credit car finance provider in the UK to find you the best car finance approval available for your personal credit rating.
See their stock at https://getabettercar.co.uk
Find out how to find a bad credit car finance dealer near you at https://www.getabettercar.co.uk/bad-credit-car-finance-near-me/
Need weekly payments? See https://payweeklycarfinance.co.uk/
