Is It Hard To Get Accepted For Car Finance?
Car finance can be a great way to get the car that you want, and allows you to pay for it over time instead of all at once, widening the available selection of vehicles, and giving you more breathing space when it comes to making your purchase. However, getting approved for financing can be difficult if you don’t have the right credit score or history.
Below, we take a closer look at just what it takes to get accepted for car finance, including the potential challenges that you may face. We also consider the best way to overcome these and to increase your chances of a successful application.
What Is Car Finance?
Car finance is an agreement between you and a lender where they agree to lend you money in exchange for ownership of your vehicle. You make payments on this loan until you own the vehicle outright, which means you are responsible for paying off the full amount owed.
This payment plan is known as ‘car finance’ because you are borrowing against the value of your car.
The benefits of car finance include:
- Flexibility
With car finance, you can choose how much you would like to borrow, and when you need to start repaying. This allows you greater choice when it comes to making a selection for your new car, and also enables access to a good range of finance deals.
- Fast Access To Cash
If you need a new car quickly and are struggling to save, then car finance could be the answer. With a quick approval process, you can take advantage of the funds immediately, without having to wait weeks or months for a bank loan.
- Lower Interest Rates
Because you are borrowing against the equity in your car, lenders will often offer lower interest rates than with other forms of personal debt. The average rate for car loans is around 4% per annum, whereas personal loans typically carry higher rates of up to 15%.
How Does Car Finance Work?
To apply for car finance, you must first find a suitable lender who will accept your application.
Once you have found a lender, you will need to complete a simple online form, providing
information about yourself and your financial situation, as well as the car you intend to purchase. If you meet the criteria required by the lender, they will send you a formal letter confirming their acceptance – in some cases, this may be done by email.
Once you receive this letter, you may be asked to arrange a meeting with the lender to discuss the details of your application; again, this may be done online in some cases. At this stage, you will need to provide proof of income, savings, and any outstanding debts. After this, you will be expected to sign a contract agreeing to repay the loan. Finally, you will need to hand over your car title to the lender, so that they can register the transfer of ownership.
Once the transaction has been completed, you will need to make regular payments to the lender, and keep them informed of any changes to your circumstances.
What Are My Options When Looking For Car Finance?
If you want to buy a car, but can’t afford to purchase it upfront from your own funds, there are several options that might work for you. These include:
- Personal Loan
A personal loan is a type of loan that can be obtained from banks and other lenders. It isn’t secured against any asset such as your home or car, which is why these loans are also known as ‘unsecured loans’. However, you will need to demonstrate that you have sufficient funds available to cover the loan, and you will need to pay back the full amount when the term ends.
- Hire Purchase
This is one of the most popular forms of car finance here at Car Finance Genie; it involves fixed monthly payments being made over time, until the end of the loan term. Once those repayments are over, you will automatically become the owner of the car.
- Personal Contract Purchase
This type of car finance has a lot in common with Hire Purchase deals; again, there are fixed monthly payments involved. Where a Personal Contract Purchase (PCP) agreement differs, is that once you have finished the main repayments on the loan, you will need to make a final ‘balloon’ payment in order to acquire the vehicle permanently. However, some drivers do like having the flexibility to walk away from a car at the end of a PCP deal, which also tends to have lower monthly repayments than a Hire Purchase arrangement.
How Can I Improve My Chances of Being Accepted For Car Finance?
There are a number of steps that you can take to boost your chances of being successfully approved for car finance, and these include:
- Get Pre-Approved Before Applying
Before you go ahead and apply for car finance, make sure that you check whether any of the lenders you are considering have pre-approved you for a loan. This way, you won’t waste time filling out forms and waiting for them to respond to your enquiry.
- Have Good Credit History
When applying for car finance, most lenders will require you to have a minimum credit rating before they will consider your application. In order to qualify for a loan, you will need to show that you can afford to pay back the money borrowed. Lenders use your credit score to help determine whether you are likely to be able to do this.
Your credit score is calculated from three main factors:
- Payment History
This includes all of your previous repayments made towards your current account. Your payment history shows how reliable you are at managing your finances.
- Credit Limit
This is the total amount of money available to you through your credit cards, overdrafts, store cards, and so on.
- Repayments
This factor takes into consideration how much you have paid off on your existing accounts, and how long it took you to clear those balances.
There are a number of ways that you can improve your credit history, including:
- Making Regular Payments On Time
Make sure that you always pay your bills on time. If you miss a payment or fail to make an agreed repayment date, this could negatively affect your credit score.
- Keeping Track Of All Your Bills
It is important to monitor your spending carefully so that you don’t exceed your budget. Keep track of all your bills and ensure you never miss a payment.
- If You Have Bad Credit, Start Saving Now
If you currently have bad credit and want to get accepted for car finance, you may be best advised to try to improve your credit score first. Once you have done this, you can look for a lender who will accept you even though your credit score isn’t perfect.
Alternatively, widen your net of potential lenders – bad credit car finance is an option to consider that might help you secure the loan you need.
- Pay Off Any Debts That Are Holding Back Your Application
If there are any debts that you owe, such as unpaid utility bills, bank charges, or other loans, you should try to settle them before you apply for car finance – these can be seen as a black mark by lenders, and may harm your chances of successfully obtaining car finance.
- Don’t Apply With A Low Deposit
Lenders usually prefer applicants who offer a higher deposit when they apply for car finance. However, if you’re struggling to find a suitable vehicle, you might not be able to come up with a large enough deposit.
- Make Sure You Can Afford The Loan Amount
You will need to prove that you can afford to repay the loan. This means showing that you have sufficient income to cover the payments and that you won’t end up having to sell anything to meet the repayments.
- Avoid Making Too Many Applications At One Time
Applying for multiple loans at once can cause problems because each one of them will appear on your credit report. This can damage your credit rating, which will make it harder for you to obtain car finance in the future.
- Be Careful When Choosing A Lender
When applying for car finance, it’s important to choose a reputable lender. Look for a company that has been around for a while, and that offers competitive rates.
When selecting your lender, make sure that you read their terms and conditions thoroughly. They should explain what happens if you default on your repayments, and give you information about how to resolve disputes.
Final Thoughts
The best way to get approved for car finance is to follow our tips above. By following these steps, you should be able to avoid making mistakes that could put off potential lenders, and increase your chances of success. For more information, why not get in touch, and see how we could help you fund the purchase of your dream car in no time?