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Reasons why you might be refused car finance

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Reasons why you might be refused car finance

Applying for car finance can be a daunting prospect. You need to go through a long process of checking your credit history, sending in the relevant documents and choosing a vehicle that meets your budget as you calculated using a vehicle calculator.

While this is all very exciting, you will need to consider what to do if you are refused car finance. Below are just some of the reasons why you might be refused car finance and some advice on what steps to take next if this happens.

 

Your income

Your income is one of the very first aspects of your application that the bank will look at in terms of successfully repaying a vehicle loan. If you are not getting an income on a regular basis, either from a full-time job or sustainable part-time work, you might be refused car finance.

Providing income history is a vital part of applying for a vehicle loan and, while using a car loan repayment calculator might show that you can afford car finance, the bank will think differently once they see your payslips and income history. If you are a temporary worker who is only paid every few months, then it is unlikely that you will be approved for a loan.

 

You have a high number of missed payments

The bank will look at your credit history before they even consider approving your loan, which is good news for those who have a high score, but for those who have a low score or who have a high number of missed payment listed, this can negatively affect your chances of getting car finance approval.

Missed payments are considered or held on record for up to five years, so the bank will be able to see them within this period. If you have the problem of missed payments, then you will need to provide enough positive information to counteract this negative behaviour. The number of missed payments should be few enough to pass the credit provider’s policy rules.

 

The type of car you want

You have had your eye on last year’s Mercedes Benz for months and you feel that now is the time to apply for car finance. You have used the vehicle calculator and sent in your application and… it was refused.

This could be because the bank or lender feels that the car is well out of your price range when it comes to repayments, maintenance and upkeep. They type of car you want is an important aspect of any vehicle finance application and can, sometimes, make or break the success of your application. Rather than getting your hopes dashed by looking at expensive cars, look at affordable models within your budget that still meet all of your wants and needs.

 

Your credit history

As mentioned earlier, your credit history plays a major role in the success of your car finance application. If your credit score is between 681 to 999 points then the probability of your loan being approved is quite high.

However, if your score is between 486 to 613 points, you are considered to be high risk and your chances of getting your car finance approved are relatively low. Banks will query your low credit history and you will have to provide them with plausible and truthful answers as to why your score is so low. You will have to tell them how you plan to build up your credit score and the bank will ascertain whether to not your suggestions are plausible.

What can you do if your car finance has been refused?

  • Improve your credit rating: This is one of the first steps you will need to take once you have found out that your loan has not been approved. Assess your report from the credit bureau and ask them to rectify any mistakes. You will need to close any accounts that you no longer use (once you have paid off any outstanding debts) and try to pay off your debt in full every month on cards that you are using.

 

  • Start saving for your down payment: Offering a down payment on your next application might help to sway the bank to approve your loan. This means that you should start saving now in order to offer a decent amount on your next application. Wait for three to six months before applying again, as this will allow you to save up some money to offer your bank for a down payment.

 

Don’t be disheartened

Having your car finance refused does not mean that you should lose hope of ever buying your dream car. If you have a current vehicle, you could use a book value calculator to see how much you could sell it for to fund your new car or you could use your time to save up for a down payment on a car you have your eye on.

Building up your credit history will go a long way towards helping your loan being approved, and you will need to ensure that your income is able to cover your expenses if you are applying for a first-time car loan.

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