For many drivers, car loans are a great way to spread the value of their next car into affordable monthly instalments. Car finance is when a lender agrees to give money or buy a car on behalf of the customer and the customer makes payment back to the lender to cover the cost. Before you can get a car on finance, you will need to receive an approval from a trusted lender. Lenders take a big risk when they give you money and they need to put roadblocks in place to ensure the customer can afford the car and also the likelihood of getting the payments back on time.
How is car finance eligibility calculated?
Each finance lender has their own car finance eligibility criteria you will need to meet before you could get a car. Some lenders may be easier to get accepted with than others but it’s also worth comparting interest rates as some lenders are more lenient with customers but put higher interest rates in place to secure the deal. Your eligibility for finance can be calculated on a number of factors such as affordability, credit score, license type, age and employment status being the most popular.
How to increase the likelihood of loan approval:
Whilst car finance cannot be guaranteed to every customer, there are a few of the most common factors to getting approved that you could consider before you even start making applications.
1. Only apply for what you can afford.
You may be refused car finance is you simply can’t afford to pay your loan back. Lenders will want to know how you’re planning on paying your loan back and with what money. Failing to be able to meet the deadlines of your finance agreement can lead to the car being take off you and more serious financial implications such as county court judgements and defaults on your credit file which impact your ability to borrow in the future. You should only borrow what you can afford to pay back and never leave yourself short. Car finance agreements can last for a number of years so it’s essential hat your circumstances aren’t going to change any time in the near future too.
2. Check your credit first and increase your score if you need to.
Your credit score is really influential when it comes to borrowing money. Your credit score indicates how you’ve handled credit in the past and based on your previous behaviour, how likely you are to pay your car loan back on time and in full. You should get into the habit of regularly checking your score and report and make sure all your information is accurate and up to date. If your score is low, you should try to better your credit where you can as it can accept approvals and interest rates when you have a low credit score.
3. Reduce any existing debt you have.
Your credit score also considers how much of your available credit you’re using. Maxing out your credit limits can seriously be harming your credit score and it also makes it harder for you to save for car finance. Where possible, you should try to clear any existing debt you have before you try to take on any more finance or credit. Lenders may also reject your application if they think you can’t handle the credit you already have.
4. Build a credit history if you don’t already have one.
Many people assume that no previous history of borrowing is a good thing, but it can actually lead you to a bad credit score instead. You may have a bad credit score due to lack of credit history because lenders can’t predict which type of borrower you will be. It can be a good idea to build a small credit history before you start applying for finance to better your chances of approval. This can be as easy as getting a mobile phone contract in your name and setting up a direct debit to meet each and every payment on time and in full.
5. Apply with the right lenders.
In some cases, you may not be suited to certain lenders. If you have bad credit, you may struggle to get approved with prime or mainstream lenders as they usually reserve their best deals for those who are less of a risk to lend to. You can increase your eligibility by using free finance checkers to see the liklihood of you being approved or by using a car finance broker. A car finance broker can help to match you with the most suitable finance deal from a wide range of trusted lenders and introduce you to a lender who they think would be best suited to your circumstances.