What checks are done for car finance?

If you're considering car finance, you may be wondering what checks are involved in securing approval for a loan. Understanding these checks can help you feel more confident throughout the process, and improve your chances of getting the car loan you need. We'll walk you through the different checks lenders perform during the car finance application process, from credit history to vehicle checks.

Overview of the car finance application process

When applying for car finance, there are several checks that lenders typically conduct to make sure they’re lending responsibly. These checks include reviewing your creditworthiness, affordability, identity, and even the car’s history. These checks are designed to protect both you and the lender, and ensure that you can comfortably manage the repayments. Understanding these steps can help you prepare for the process and improve your chances of securing approval for your car loan.

Credit checks: Evaluating creditworthiness

One of the first checks is your credit score. This is a three digit number that appears on a financial report which shows your trustworthiness when it comes to borrowing money and gives a lender insight into how you’ve managed credit in the past. Your score is based on several factors, such as whether you’ve paid bills on time, how much of your credit you're using, and how long you've had credit. The better your score, the easier it is to get approved for credit and get lower interest rates.

Want to know more about your credit score? We’ve got all the info here. 

When lenders check your credit score, they may look at reports from a credit report agency such as Experian, Equifax, or TransUnion. Each of these agencies has its own methodology for calculating your score, but they all provide a general picture of your financial health. The higher your score, the more likely you are to get approved for car finance with competitive terms.

Affordability checks: Assessing financial health

Lenders want to ensure that you can comfortably make your car finance repayments without putting too much strain on your finances. During this part of the process, the lender will review your financial situation, including:

• Income: How much you earn each month.
• Monthly expenses: Your essential outgoings, such as rent/mortgage repayments, utilities, and other financial responsibilities such as childcare payments.
• Existing debts: Any other loans, credit cards, or financial commitments.

Lenders will use this information to calculate whether your loan is affordable and how much they can lend you based on your income and current financial obligations.

Vehicle checks: Ensuring car value and condition

As the car itself is used as collateral for the loan, it’s important for lenders to ensure that it holds enough value and is in good condition. Vehicle checks involve reviewing several factors:

• Market value: What the car is worth in today’s market.
• Age and mileage: How old the car is and how many miles it has done.
• Vehicle history: Has the car been involved in any accidents or does it have any outstanding finance?

These checks help the lender assess whether the car is a sound investment, ensuring that its value justifies the loan amount. If the car is in poor condition or has a low value, the lender may offer less favourable terms or even decline the application.

Identity and address verification

To comply with regulations and prevent fraud, lenders must verify your identity and address. This is a standard part of the process that ensures that you are the person you're claiming to be and that your contact details are up to date.
In the UK, you’ll usually be asked to provide:

• Proof of identity: A driver’s license, passport, or other government-issued ID.
• Proof of address: A recent utility bill, bank statement, or council tax bill.

These documents protect the lender and help to ensure that the details you provide are accurate and up to date. The process is a routine part of applying for car finance, and providing the required documents quickly can help speed up the application process.