When it comes to getting a car on finance, it’s worth noting that no finance lender can guarantee finance and lenders put checks in place to assess customer eligibility before they decide to offer them finance or not. From a lender’s point of view, giving applicants money to buy a car is all about risk. They want to know how they’re going to get their money back and if payments will be made on time or not. To assess the level of risk, there are a few checks they put in place first to see if applicants are eligible and if they can afford finance. The guide below looks at the most common finance checks that lenders require when you apply for finance.
- Credit Check
A credit check is used by lenders to see how you’ve handled payments in the past and check your credit history. When you apply, you agree for the lender to take a look at your credit score and the information listed on your credit file. A low credit score usually indicates you’ve had problems in the past with sticking to finance deadline and this increases the risk to the lender as you’re more likely to default on future loans too. Lenders usually reward customers who have better credit scores with lower interest rates too. If you’re worried about your eligibility for car finance with bad credit, you could consider increasing your credit score before you start applying to help better your credit and increase approval rates.
- Income Check
Probably the most important check that lenders put in place is an income or affordability check. It goes against the rules of responsible lending if a lender gives out money to someone who simply can’t afford to pay it back. Lenders usually put in a minimum monthly income amount that applicants will need to meet, and you can prove your affordability by showing proof of payslips and bank statements. Usually, 3 months’ worth of bank statements showing your earnings and outgoings in a UK bank account. If you’re self-employed, you should deposit any money you get into a bank account to show your earnings as lenders can’t rely on cash in hand.
- Proof of Identity
To reduce the risk of fraudulent applications, lenders will require you to verify you are who you say you are. They can use a mix of methods to confirm this, but the easiest way is to supply proof of a passport or driving license. Lenders can also use your credit score to cross-reference the information on your application too, so it’s important that your credit report is accurate and up to date. In some cases, you may also be required to supply a council bill or utility bill to prove your living address too. If your car finance agreement is a secured loan, this means the lender owns the car throughout the agreement and it’s important for them to trace the car and where it will be kept if you fail to make repayments.
- Employment Status
Lenders tend to favour applicants who are in full time employment as they are more likely to be able to keep up with repayments. You can prove your employment by suppling bank statements and payslips from your employer. If you’ve recently changed jobs, you will have to be passed your probation period or have been there for at least 3 months to qualify. If not, lenders may also ask about your previous employment too. If you’re currently unemployed with no income, you may be refused car finance on the basis that you simply can’t afford to get a car. It can be possible to get finance with benefit or pension income if you can prove your affordability too.
- License Type
If you don’t have a driver’s licence, you can’t get a car on finance. There can be options for drivers with a provisional license but your eligibility increases massively once you’ve passed your test so it can be worth waiting till you do to get the best finance deals. Lenders will ask you to send over a copy of your full UK driving license as proof too. If you’ve recently passed and have not received your full licence, you can still apply as lenders can check your details with the DVLA too.