When you apply for a car loan, the lender will review your application and decide if they want to offer you finance or not. Receiving a finance approval means you can get a car on finance and pay for it over a term that suits you. Car finance is more accessible than it’s ever been, but the decision is ultimate in the lender’s hands. If it’s not good news and your car loan gets rejected, what do you do? This guide looks at the top 5 reason why your car loan application may have been refused and the steps you should take afterwards.
Why have you been declined car finance?
There are a number of reasons why your car finance application may have been declined. At the end of the day, the decision lies with the lender who you have applied with, but the most common reasons are below.
Lack of affordability.
Your affordability for a car loan is how much you can comfortably put towards your car finance payments each month. Lenders can put in place a require minimum income and you may be rejected if you don’t meet this threshold. It’s important that lenders don’t give money to customers who simply can’t afford to pay it back as it can land them in serious financial difficulties. If you’re unsure of how much you could afford, you can use a free car affordability calculator UK to see how much you could borrow before you even apply!
Low credit score.
A bad credit score is one of the most common reasons why you may be rejected for finance. There are a number of ways in which you can land yourself in bad credit position but the most popular is missed payments on your credit file. This increases the risk to future lenders as you’re more likely to default on loans again. A lower credit score can also affect the interest rate you are offered if you were to be accepted and higher interest rates mean you pay more money back to the lender.
Mistakes on your application or credit file.
If you incorrectly put any misinformation on your car finance application, it can affect you chances of being approved. Lenders don’t just run a credit check on you to see what your credit score is but also use your credit file to verify your identity. If the information listed on your credit report doesn’t match that of your finance application, they may decline you as it could be fraudulent application in your name. Make sure your credit report is accurate and up to date and also the information you supply on your application is in line with your credit report.
No driving license.
It can be tempting to apply for finance when you’re learning to drive or on behalf of someone else who will be driving the car, but lenders usually automatically reject any applicants who don’t have a full UK driving license. If you’ve just passed your test, you don’t need to wait for your new licence to come through in the post and lenders can instead check your details with the DVLA to verify your full license. Waiting until you have a full license can help to open up more finance options and get you a better deal.
You don’t meet the lenders criteria.
In many situations it can be as simple as the fact you don’t meet that lenders criterion. Unfortunately, there’s no universal pass for car loans and each lender can set their own requirements. Some lenders may refuse anyone with bad credit, but others may focus more on your current affordability rather than your history of borrowing. It can be worth taking some time to find a lender who is suited to your circumstances or by using a car finance broker who can compare lenders on your behalf.
What should you do after your car finance was rejected?
It can be disheartening if you’ve been rejected for a car loan, especially if you need a vehicle in a hurry but there are few ways in which you can improve your chances of being approved in the future. If you’re still unsure of why you were declined, you can contact the lender and ask them in what basis you were refused to get a better understanding of what’s holding you back.
Stop making applications for finance.
It can be tempting to apply with as many lenders as possible to see who will approve you but multiple applications in a short space of time can have a negative impact on your credit score. Instead, you should take some time to find out why you’re getting refused and try to put it right before applying again.
Work on your credit.
If you’ve been refused due to low credit, it can be a good idea to use the break from applying to better your credit. If you have any current finance agreements in place, you should meet all your current payment deadlines to show future lenders that you can be trusted to stick to the rule of your loans. Getting into the habit of checking your credit regularly can also help to see what factors are holding you back and where you can improve.
Reduce any current debt you have.
When you have high levels of existing debt, it can make it harder to get accepted as lenders may think you can’t handle taking on anymore credit or finance. It also makes it harder for you to budget fir a car when you already have debts to pay off. Your credit score considers how much of your available credit you’re using and maxing out your limits has a negative impact on your score. You should try to clear any existing debt first before you apply for a car loan.
