Why have I been refused car finance?

It’s the worst feeling, isn’t it? When you finally find your dream car on the forecourt, apply for finance to make it yours, and then the lender slams the brakes on your plans with a big fat rejection. The computer says no for lots of different reasons, and if it happens to you, it doesn’t necessarily mean it’s the end of the road.

The good news is that once you know why you’ve been turned down for car finance, you’ll know what you need to do to make sure it doesn’t happen again.

What are the most common reasons for car finance being rejected?

Lenders can be really picky, and they all have their own specific set of criteria when it comes to accepting or rejecting applications. There are tons of reasons why car finance applications get rejected, but it’s often one of these.

Your credit score

If your credit score is on the weak side, this could well be the reason why you got turned down. Poor credit is by far the biggest reason why lenders turn people away, because they use your credit history to gauge how reliable you are, and if they think you’re too risky, they’ll say no.

Your age

By law, you have to be at least 18 to get car finance, and some lenders will only accept people over the age of 21. So, if you passed your test at 17, you’ll need to sit tight for a while.

Your work situation

If you’re self-employed or have just started a new job, the lender may think your income is unreliable or inconsistent, and say no because of that. You don’t necessarily have to have a job to get car finance, but you need to show that you’ll be able to pay the monthly payments.

Your driving licence

You won’t get approved for car finance while you’re still on a provisional licence, so you’ll need to pass your test before applying for finance. Even after you’ve passed, you might get refused finance in the UK if you have an EU licence. It’s also worth pointing out that you won’t get approved for car finance if you’re currently banned from driving.

Affordability

Lenders have to lend responsibly, so they ask about your income and major regular expenses so they can weigh up whether you can afford the monthly repayments. If they crunch your numbers and reckon your budget’s looking too tight to make repayments affordable, it’ll be more than likely be a no.

Eligibility

Every lender has their own specific wish list of eligibility criteria, so if you don’t meet those, they’re likely to say no. But all lenders are different, so if one’s refused you, that doesn’t necessarily mean they all will.

How does my credit score affect my chances of being accepted?

Your credit score is a big deal when it comes to getting car finance. Lenders run a credit check when you apply for car finance, so they can look at your track record of managing your finances. 

If your score is healthy, and you’ve kept on top of all your repayments, you have a good chance of being accepted. If, on the other hand, you’ve missed payments here and there, or if you don’t have much credit history built up yet, you’ll probably have a harder time getting a thumbs up from the lender.

A low credit score doesn’t necessarily mean an automatic no. But if you do get accepted for car finance, you can expect to pay a higher interest rate.

What can I do next to improve my chances of approval?

When you get that dreaded rejection, it might be tempting to go straight back in and apply again. You just want to get your new car sorted, right? But, do yourself a favour and slow down a little.

Before you apply again, check your credit report to see if there’s anything on there that would put a lender off. There’s a lot you can potentially do to give your credit score a boost - here’s a few steps to get you started:

• Check all your details are right - if there’s wrong information on there, contact the credit agency to get it updated
• Register on the electoral roll
• Pay down your credit card or loan balances
• Pay anything you owe that’s late or overdue

Alongside this, make sure you pay all your bills on time. Missing payments or paying bills late will make you look unreliable, and lenders won’t be keen to accept you for car finance. But if you keep on top of things, over time this will show you can manage your finances responsibly, and you’ll have a better chance of being accepted next time.

What other options are available to me?

You might want to look into guarantor car finance - this is where you add another person to your car finance contract, who agrees to pay your debt if you can’t. The other person, called a ‘guarantor’ should be someone you trust, and they should have a better credit score than you. 

You’re still responsible for making the repayments every month, but if life throws you a curveball and your circumstances change, the guarantor is there as a safety net to make sure the payments still get covered. From a lender’s point of view, this is potentially less risky than lending to you on your own, as they’ll be more confident they’ll get all their payments, so you may have a better chance of being accepted.

When you start shopping for car finance, you’ll probably come across the option to get pre-approved car finance. This is when the lender does a soft credit check (which doesn’t show up on your credit report) and pre-approves you for car finance - they might even tell you how much they would lend to you, for how long, and at what interest rate. Pre-approval can help you get really clear on where you stand, and be confident about your options before you go car shopping.

Will an application rejection affect my credit score?

Most lenders will initially run a soft credit check at the start of the application process to help take a glance at your credit history without leaving a mark on your report. They do this so they can get an idea of how risky it would be for them to lend to you. If you decide to proceed and sign your agreement for car finance, the lender does a hard search on your credit report so they can see your credit accounts and check how you’ve managed them. 

But, a hard credit search leaves a mark on your profile, so next time you apply for car finance (or a credit card, or a loan, or an overdraft, or a mortgage…) the next lender will be able to see that search on your record. If you have a lot of hard searches on your file, it could make lenders wonder why you’re making so many applications, and it could suggest that you’re struggling financially and desperate for credit. And what are the chances of them wanting to lend to someone in that situation? Not great.

You can’t swerve the credit check when you’re applying for car finance - it’s a standard part of the process. That’s why it’s so important not to rush into applying again straight after you’ve been rejected, so you don’t end up shooting yourself in the foot and harming your credit score.

Can you still get car finance once you’ve been refused elsewhere?

If a lender has turned you down for car finance, it’s not necessarily game over. The lender you applied to might have said no based on their own specific criteria, but you could still be accepted by another lender, which might have a different wish list. It’s still worth checking your credit report and getting your ducks in a row before you jump straight into another application, though.