In the financially unstable climate that we currently live in, obtaining a car through car finance is often a more viable option than the prospect of buying a car outright. Findings from Statista revealed over two million cars were bought on finance in the UK between September 2021 and September 2022.
To help guide you through the process and ensure your application is as strong as possible, the experts at car finance specialist Zuto share their advice below.
Jo Robinson, Director of Lenders at Zuto said, “One of the most common reasons people find themselves declined for car finance is having a particularly bad credit score and history.”
“It’s important to recognise that if you have been unsuccessful in a car finance application, it is not the end of the road. The best thing to do is to take a step back and identify the reason why. Once you have a better understanding, it’s then time to make the necessary steps or changes to put yourself in a stronger position for your next application.”
So, if you’ve been declined previously (or are looking for some advice on making your first application), here are five tips for submitting a strong car finance application.
- Review your application
If you’ve found yourself being declined previously, you should double check your application to ensure all of your details are accurate.
Jo advises: “The difference between being accepted or declined can lie in small inaccuracies in your application, so it’s well worth taking the time to double check everything before you submit.
“One factor such as making sure you’re registered at the correct address on the electoral roll can be vital in whether you get approved or declined, as this plays a part in a lenders’ evaluation of your credit history.”
- Do your research
Before committing to a car finance application, do a little digging to find a car finance option that best fits your financial situation.
Jo advises: “It’s important to understand that not all car finance companies will have the same kind of criteria when it comes to your credit score and measuring your eligibility. If you are looking for a bad credit car finance option, you should look to apply to those that openly welcome this type of application.
“Typically, high street banks don’t cater to the full market and can often favour people with a higher credit score, so it’s well worth carrying out some research to find out which kind of customers they can help”
- Opt for a joint application
If your personal situation means you don’t have a stable income you may be best to apply for a joint car finance application.
Jo adds:“If you don’t have a regular income or currently have a provisional licence, consider making a joint application with someone who has. If they’ve got a good credit score, you’re then more likely to get approved as the lender will see them as a viable fall-back option if you were to miss payments. However, their credit score could be impacted negatively if this was to happen, which is something you should be aware of before deciding if this is the right option for you.”
- Using your credit card responsibly
In the lead up to applying for car finance, it’s important to build a positive credit score – and with google searches for “how to improve your credit score” up by 276% in the past month, you’re not alone if you’re looking to improve yours.
Jo says: “Credit score is one of the most important elements of a car finance application. To boost your chances of getting approved, you should look to build a stronger score, and your credit card can be helpful in this scenario if used sensibly; meanwhile, spending regularly and not paying off your credit card can negatively impact your score.
“One of the easiest ways that you can use your credit card to improve a bad credit score is to make small, everyday payments on your credit card and pay them off straight away. By regularly spending on and paying off your credit card, you are helping to show lenders that you’re a responsible and reliable borrower.
“Additionally to using a credit card another quick switch you can make to boost your credit score is by making regular payments such as your utility bills or mobile phone contract by direct debit. ”
- Paying off existing debt, loans or credit cards
Before applying, you should carefully review your current financial situation and look to deal with anything that could present you to be a potentially irresponsible spender.
Jo explains: “Outstanding debt, loans and maxed-out credit cards can make you look like you rely on loans for payments regularly, suggesting insufficient earnings to maintain your spending habits. Whilst this may not be entirely accurate based on personal circumstances, on paper, you’ll end up looking like an irresponsible spender which lenders will be wary of.
“As a general rule of thumb, I’d advise to try and keep any credit cards below 25% of your spending limit, so it’s worth keeping on top of.”
If you are interested in better understanding your options for financing a car without impacting your credit score, please visit: https://www.zuto.com/car-finance-calculator/