Being refused for car finance is not the best feeling, particularly when you’re eager to get your new car and get on the road.
Take heart it could happen to anyone – and there are quite a few reasons why.
The good news is, once you understand the reason(s) your application was refused, there are steps you can take to make sure you get the car finance you want.
1. Poor credit
Poor credit is by far and away the biggest factor why car finance is refused. Having a poor credit score is viewed by finance companies as a higher risk, and they’re therefore more likely to reject an application for car finance.
Credit scores can be affected by a number of things, including missed payments and outstanding debt.
Some instances, such as having a County Court Judgement (CCJ) or defaulting on payments, can stay on your credit file for up to six years. The longer ago these issues are, the better for lending purposes.
Other reasons for a poor credit score might not be related to your finances at all. It may be that you have no credit, as there hasn’t been enough activity for the credit bureaus to generate a score.
You may not be registered with the electoral roll, or you might have moved recently – something that affects your score as it’s used to determine identity.
2. Your age
It’s an unfortunate fact that some lenders take your age very seriously when it comes to car finance.
If you passed your test at 17, there’s not very much you can do other than waiting a year, as finance agreements cannot be offered to those under the age of 18.
If you fall into the 18-21-year-old age bracket, some lenders will refuse your car finance due to their criteria.
However, there are lenders out there who are willing to make an offer to younger customers, so it could be a case of shopping around.
3. Employment status
Each lender has its own set of criteria that borrowers must meet to get car finance. The criteria is usually based on risk levels and affordability.
So, if you’re self-employed, have just started a new job or are deemed to have an unstable employment history, some lenders could refuse your application for car finance
You don’t necessarily have to be employed to get car finance, but having proof that you’ll be able to pay the monthly instalments will help strengthen your application.
4. Affordability
Lenders must only lend responsibly. Part of that means looking at your income and outgoings to make sure you can afford the repayments on your car finance.
Remember, a larger deposit will lower those monthly instalments and make it more affordable for you to meet your repayments comfortably.
5. Eligibility
Every lender is different and has their own criteria that must be met in order for them to approve finance.
If one lender has refused you car finance, it doesn’t mean they’ll all refuse you. However, it’s wise to check eligibility criteria before you apply and take note of the steps below.
What to do if you’ve been refused car finance
If you’ve been refused car finance, it doesn’t mean the end of the road when it comes to owning the car you want.
Here are some steps you can take to help:
Build your credit score
If you’ve been refused car finance due to a poor credit score, there are some things you can do to improve it.
First and foremost, you need to check your credit report. This will give you a better idea of what’s wrong and how to rectify it.
Common ways to boost your score include:
- Check that all your details are correct on your file. If not, you can contact the credit agency to have them updated.
- Make payments on time.
- Speak to any creditors and agree on an affordable plan to pay them off.
- Register on the electoral roll.
- Pay off or pay down your credit card/loan balances.
Don’t make multiple applications
When you’ve been refused car finance, it’s tempting to immediately reapply with someone else. However, doing this will negatively affect your credit score, as some lenders will carry out a hard search on your report.
A hard search gives lenders an in-depth view of your credit history. Through this, they’ll be able to see what credit you’ve had in the past and how you’ve managed it. They perform this search to analyse what risk you would pose as a borrower. However, it leaves a visible mark on your credit file.
When a lender sees that many hard searches have been performed on your credit file, they wonder why you’re making so many applications.
A soft search provides an overview of your credit history to give lenders enough information to say whether you could be accepted, but it doesn’t leave a mark on your file.
This is one important reason why we only ever carry out initial soft searches at Hippo, which won’t impact your score.
Find a more suitable lender
There are many lenders, and all have a unique set of criteria, so it’s important to find someone who will assess your needs and circumstances when applying for finance.
At Hippo, we work with a variety of specialist lenders who recognise that people may have had pressures on their credit rating for a huge amount of reasons – often through no fault of their own, such as losing a job or a change in personal circumstances.
We’re on hand to help provide financial solutions so you can get your brand new, nearly new or used car.
Pick the right finance option for you
The type of finance you choose will depend on your circumstances and preferences.
The four main types of car finance are hire purchase (HP), personal contract hire (PCH), personal contract purchase (PCP) and lease purchase (LP).
Find out more about the different types of car finance.
At Hippo, we want to make sure you get the right type of finance to meet your needs. Our friendly account managers will explain the different types of car finance available to you and how they work. They’ll discuss the benefits and disadvantages, so you have all the information to make the choice that’s right for you.
Speak to a different dealer or broker
When you apply for car finance through certain dealers or brokers – franchised dealers, for instance – they’ll have a limited lending panel usually tied to their group’s own finance company.
These lenders tend to take diverse circumstances into account and so it can lead to more refusals.
At Hippo, we’ve built up a trusted and proven panel of lenders that caters for everyone. We recognise that everyone has a different financial history, and we don’t believe that it should stop people from getting the car they want or need.
Read: What’s a credit broker and what should I look out for when financing a car?
Want to know where you stand for car finance?
You can find out if you’re eligible for finance today using our free and fast soft finance check. It takes two minutes to complete the form and applying won’t affect your credit score, so you can get an idea of where you stand without worrying about your credit file being affected.
You can get started right now. If you apply during working hours, you’ll typically find out on the very same day.
