What if my car finance is approved and later declined?

Your car finance journey can feature a few twists and turns.
 
Once you’ve decided to apply, enter your details online and click ‘submit’, getting the response you want will depend on a whole host of factors. Approvals are based on each individual lender’s eligibility criteria. Each one can take different things into account, but they’ll typically investigate your credit score, employment status, and affordability before making a decision.
 
But what happens when they change their mind?
 
It’s a relatively rare occurrence, but you can sometimes get an approval in principle and then get declined further down the road.
 
There could be several reasons for a delayed rejection. For example: A hard credit check might have revealed things in your payment history that worry them or the car you’ve fallen for might be too old for them to finance.
 
No matter the reason, a decline doesn’t have to be a dead end and you can always reapply.
 
Ready to find out more? Our guide will tell you everything you need to know about car finance approvals and declines: 

Why was my car finance approved and later declined?

There aren’t many feelings as bad as getting your hopes up and then being knocked back before you reach the final hurdle.
 
The good news is that being declined after you’ve received an approval in principle doesn’t happen every day, although it is possible. And sometimes it’s best to be prepared for the worst, just in case.
 
Your approval status will usually depend on the lender’s eligibility criteria and where you are in their application process. An approval in principle (the all-important first step) is based on limited data including the information you shared in your application form and the results of a soft credit search.
 
It’s only if you choose to move forward that other factors start impacting your approval such as the car you want to buy, your affordability, and the details revealed during a hard credit search.
 
If this more in-depth information doesn’t meet the lender’s eligibility criteria, you’re unlikely to get a final approval and your application will be declined.

What are the common reasons why my application might have been declined?

There are a few reasons why a lender’s eligibility criteria can lead to you being declined (just like in dating, it really is them, not you…)
 
Common reasons for a car finance decline include:

• Making a mistake on your application

  Whether you’ve entered a wrong letter in your postcode or missed a 0 in your monthly income, making a mistake on your application could lead to a rejection.

• Having a bad credit score

  While your credit score isn’t everything, it is a tool that lenders use to understand how you might act as a borrower. If you’ve missed payments in the past or had an IVA or CCJ, your credit score may need some TLC before you can be approved.

• The lender’s criteria

  Each lender sets their own criteria, which means one might approve your application while another could reject it. You might fall outside their eligibility requirements due to your age, address history, or because of the car you want to buy (e.g., if it’s over 10 years old).

• Your affordability

  Affordability checks are an important part of the car finance process as they help make sure you don’t end up with a loan you can’t afford. The lender must lend responsibly, so they’ll need to look at how much money you have left over (your disposable income) each month after all your essentials are covered. If you don’t have enough disposable income, your application could be rejected.

• Your employment status

  Some lenders can be more reluctant to offer finance to people with an unpredictable income who might struggle to maintain regular repayments. That might include self-employed people, agency or temp workers, or retirees.

• You don’t enjoy long walks on the beach
  You prefer quick strolls to the shops. 

What’s the difference between a soft and hard credit check?

There are two different types of credit check: soft and hard.
 
A soft check usually (but not always) comes first. This lets lenders access some of your credit history so they can use that information to decide whether they can offer you an approval in principle. You’ll be able to see that the check has happened by looking at your credit report, but it won’t be visible to anyone else and shouldn’t affect your credit score.
 
Hard credit checks are a bit more serious. Some lenders will go straight to this step, but most will wait until you decide to accept their quote before pulling the trigger. With a hard credit check, the lender will be able to look at your credit history in much more detail. This type of check is also listed on your credit report and can be visible to other lenders for up to two years.
 
It's best to avoid having too many hard searches on your credit report in a short time, if possible, as this can negatively affect your credit score.

How can I improve my chances of being approved?

Depending on the reason why your car finance application was rejected, you can make changes to help improve your chances of getting the green light next time around:

• Improve your credit score

  If your credit score could use some attention, you can help it gain a few extra points by doing things like making all your other payments on time, registering on the electoral roll, and trying not to use all the credit available to you (no maxing out your credit card for a while!)

• Choose a different car
  When the car you’ve chosen falls outside of the lender’s criteria, you might want to go back to the dealership to find a new model that fits the bill. This could be a newer model, one with a smaller engine, or something cheaper that means you won’t need to apply for such a large loan.

• Save a bigger deposit
  Just like choosing a cheaper car, saving a large deposit to put down upfront can reduce the amount you need to borrow. The less money you need from the lender, the lower the risk. If you can save up some cash and apply for a smaller loan, you might find you’ll be approved without any issue.  

• Apply with a car finance broker

  Different lenders have different eligibility criteria, and some specialise in helping people with less-than-ideal circumstances including bad credit scores. When you apply with a car finance broker, your eligibility will usually be assessed by all the lenders on its panel so, while some might still reject you, you may also find one that is happy to take a chance. Just make sure only a soft credit check will take place to avoid ending up with lots of hard searches on your credit report.