Arguably the most important factor in getting approved for car finance is your credit score. Your credit score is a number that represents your creditworthiness. It gives lenders an instant impression of your financial health.
Car finance providers will decide whether to lend to you, and at which rates, based on your credit score. Put simply, the better your credit score the more likely it is that you will be offered car finance, and with better terms.
Learn more about credit scores, and how to keep yours in shape.
Credit scores range between 0 and 999 in the UK. They are calculated according to a variety of factors, including the amount of debt you owe, your payment history (how often you missed a payment and how late your payments were), and length of your credit history.
The three main consumer credit agencies in the UK are Equifax, TransUnion and Experian. Each has its own method for calculating credit scores. You can check your credit score for free at any time with all of them.
There isn’t one specific credit score that you need to reach to become eligible for car finance. This is good news if you don’t have a great credit rating because there are lenders who will offer finance to individuals with low credit scores. The rule of thumb is that the better your credit score, the better deals you are likely to access. Every lender will have their own requirements and it’s important to be aware of what these are before you apply.
While each finance provider will have its own criteria for lending, they all want to know the same thing: what kind of borrower you are, and whether you can be relied upon to pay the money back.
Firstly, they will want to know your credit score. This gives them an idea of what kind of borrower you are. As we’ve discussed, the better your score, the more chances you have of being accepted, and you’ll be offered lower interest rates.
Next, they will take a closer look at your financial history by looking at your credit report. While your credit score is an overview of your financial health, the credit report is a deep dive. Finance providers will be looking at:
How much debt you have
Your repayment habits (whether you pay your bills on time and in full)
Any court applications or insolvencies you have had
Your address
Your earnings
Your application history
Any financial associations you have with others.
Their findings will determine whether or not they will offer you finance, and under what terms.
Soft credit checks
A soft credit check is a top-level snapshot of your financial history. Rather like a screening process, lenders run soft credit checks on potential customers before inviting them to apply for finance to decide whether they are eligible for credit. Soft checks highlight public information from your credit report, including your name and address, your electoral roll status and a basic overview of your financial history. A soft credit check won’t reveal your credit score itself.
Find out more about soft credit checks and what they are used for.
Hard credit checks
A hard credit check is a detailed review of your credit record that may impact your credit score. Hard credit checks usually take place when a finance provider is making its final lending decision as part of the application process for a loan, credit card or mortgage, for example, after you’ve found and applied for a deal you want. Unlike soft checks, hard credit checks are visible to other lenders and stay on your credit record for 12 months. (A soft credit check will also leave an imprint on your credit file for 12 months, but this will only be visible to you.)
Don’t apply for too many loans or credit cards in a short space of time, as too many hard checks can put lenders off, often being interpreted as a sign of someone who is struggling with their finances.
Repayment habits
If a lender can see that you regularly make all your payments on time and in full and that you have never missed a payment, they are more likely to lend to you. Good repayment habits are a strong indicator of financial reliability and will encourage the lender to look at you favourably.
Of course, the opposite is also true: if your credit score reveals that you have struggled to make your repayments in the past, you will be seen as potentially a higher-risk customer and may only qualify for a loan with less favourable terms.
If you have only been late with one or two payments, this isn’t as bad as defaulting on a loan, but the better your credit score the better your chances of accessing the most favourable deals. Everybody’s credit file is different and lenders will base their decisions on a case-by-case basis.
Debt amount
Your debt-to-income ratio is the total amount of all your monthly debt payments divided by your gross monthly income. Working out your debt-to-income ratio is one way that finance providers assess your ability to manage your monthly repayments. Different lenders will have different debt-to-income benchmarks, but lenders will use this, alongside your credit score, to determine your suitability for a loan. When it comes to finance, the lower your DTI, the better. Anything under 36% is regarded as good, while between 40% and 49% is reasonable. If your DTI ratio is above 50% however, you may be seen as a high-risk customer.
Court and public records
A County Court Judgment (CCJ) can adversely affect your ability to get credit for up to six years. You might get one of these if someone takes you to court because you owe them money and you do not respond. If you have a CCJ on your record, most lenders will be wary of offering car finance, but you may find some who will. You can expect to pay a very high interest rate, however. After six years any CCJ will be removed from your record.
Bankruptcy and any previous loan defaults will also appear on your credit report and will significantly lower your credit score, impacting your chances of being accepted for car finance.
Application history
A recent, unsuccessful car finance application, or two many applications for other sorts of credit, can make it much harder to qualify for car finance. This is because multiple applications can signal to lenders that you are struggling to manage your finances and could therefore be a high-risk customer.
If this is the case for you, don’t worry. While there is no overnight fix, there are things you can do to gradually improve your credit score. If you have made a recent car finance application that’s been unsuccessful, then the first thing to do is figure out why you’ve been refused. Then you can take steps to address the underlying issues. If you are struggling to manage existing debts, there are organisations that can help.
Every lender will have their own criteria, but you can expect to provide the following:
Proof of ID – normally a valid passport or driver’s licence.
Proof of address – up to two proofs of address are often required, to prove that you live where you say you do. Utility bills that are under three months’ old are usually acceptable.
Proof of income and employment history – at least three months’ bank statements or payslips, plus your job title and salary. If you are self-employed, you may also need to supply further documents such as trading accounts details and tax returns.
Bank details – you’ll need to provide the account details for the account from which you will be making your repayments. You’ll also need to supply your sort code, account number, and the branch’s postal address.
How long will a credit check for car finance take?
Generally, credit checks are fairly quick to perform, and usually take between one and two days to complete. The process may take longer if supporting documents are needed, or if there are gaps or mistakes in your paperwork.
Can I get car finance without a finance check?
No. Finance providers won’t ever offer car finance without running credit checks first to protect both themselves and the applicant.
Will I get accepted for car finance?
If you have a good credit rating and can show that you can afford the repayments, then providing you meet the essential criteria of your preferred lender then there is a good chance you will be offered car finance.
