Securing car finance in the UK can be challenging, especially if you’ve been repeatedly declined by lenders. Rejections often stem from factors like poor credit history, insufficient income, or errors in your application. When you’re refused a car loan, it can be disheartening. However, there are practical steps you can take to boost your approval odds.
Before you dive headfirst into the practical tips below, the decision to offer you finance is lies with the lender and if you’re highly unsuitable for finance, it may not be the right situation for you. Keep in mind that car finance won’t be offered to everyone who applies, and you should work to master your money first if you’re struggling to get approved.
1. Understand Why You’re Being Declined.
Knowing why you were declined a car loan is the first step in understating how to improve your chances of getting car finance. Identifying your weak spots then give you something to build on. Lenders assess applications based on creditworthiness, affordability, and risk. Common reasons for rejection include:
- Low Credit Score: A history of missed payments, defaults, or County Court Judgments (CCJs) can lower your score, making you a higher risk to lend to.
- High Debt-to-Income Ratio: If your monthly debt payments are too high compared to your income, lenders may see you as overcommitted. And deem your affordability as too low.
- Inconsistent Application Details: Errors or discrepancies in your application can lead to automatic declines. Ensure all details on your credit report are accurate and up to date.
- Recent Applications: Multiple credit applications in a short period can signal financial distress and can further harm your credit score.
2. Improve Your Credit Score.
If you’re being refused car finance due to a poor credit score, the first thing you should do is obtain a copy of your report. You can use one of the UK’s credit agencies, Experian, Equifax, or TransUnion for free. A higher credit score signals reliability to lenders and can make it easier to get accepted for finance. While improving your score takes time, small actions can make a difference:
- Register on the Electoral Roll: This verifies your identity and address, boosting your score. Even if you don’t wish to vote in the UK elections, you don’t have to. Being on the electoral roll will be recorded on your credit report.
- Pay Bills on Time: Consistent, timely payments on existing debts (e.g., credit cards, utilities) demonstrate financial responsibility.
- Reduce Debt: Pay down high-interest debts, especially credit cards, to lower your credit utilization ratio (aim for below 30%).
- Avoid New Credit Applications: Each application leaves a “hard search” on your report, which can lower your score. Wait at least 6 months after a rejection before reapplying.
3. Choose the Right Finance Option.
Not all car finance options have the same eligibility criteria, and you may be better suited to some over others. In some cases, you could be declined because you’ve applied with an unsuitable lender. If mainstream lenders decline you, explore alternatives:
- Personal Contract Purchase (PCP): A form of car finance with more flexible ownership options. PCP deals can require a decent credit score but offers lower monthly payments.
- Hire Purchase (HP): Often easier to qualify for, as the car is secured against the loan, but monthly payments may be higher. A secured car loan also means the lender can take the car off you if you fail to repay so be sure you can afford the payments before committing.
- Guarantor Loans: A guarantor car finance deal is when a trusted person (e.g., a family member or close friend) with good credit agrees to cover payments if you default. However, if you both fail to pay, both your credit files can be negatively affected.
- Subprime Lenders: These are car finance specialists who aim to help people with poor credit scores. In some cases, they can charge higher interest rates so it’s best to shop around. Research reputable providers via the Financial Conduct Authority (FCA) register to ensure you’re getting a good deal from a trusted lender.
4. Strengthen Your Application.
One of the main things a lender is looking for is the Lenders want assurance and proof you can afford repayments. You can do this by providing proof of stable income and earnings. It’s common for lenders to ask for at least 3 months’ worth of bank statements to show your affordability.
If you’re struggling to get approved, you could consider lowering your loan amount. Borrowing too much for a car puts you in a riskier position, should you not be able to afford your loan payments in the future.
5. Consider a Co-Signer or Joint Application.
If your credit is weak, applying with a partner or co-signer with strong credit can improve approval chances. Their income and credit score are factored into the decision, reducing lender risk. These types of loans may not be offered by mainstream lenders and instead those specialist sub-prime lenders which we have mentioned above.
6. Be Realistic About the Car.
If you’ve got bad credit or low income, you’re probably not going to be able to finance a top of the ranger, brand new car with all the bells and whistles. Expensive cars increase loan amounts, making approval harder, especially if you’ve struggled with repayments in the past. Be realistic the type of cars you can get with your budget. Used cars under £10,000 often have more lenient finance terms and could be more accessible.
7. Choose FCA-Regulated Lenders.
If you’re struggling to get approved, it can be tempting to apply here there and everywhere. However, this can be dangerous and make your credit situation worse. Avoid predatory lenders by sticking to FCA-regulated providers. Check the FCA’s Financial Services Register to verify a lender’s legitimacy. Regulated lenders must follow strict guidelines, ensuring fair treatment to all customers.
