If you’ve been searching for car finance, you may have noticed that most lenders want to perform a credit check on you before you can get a car finance approval. There can be a number of reasons why this may off-putting and one of the most common reasons is a bad or low credit score. In many cases, a lender may see you have bad credit and then decline your car finance application. The guide below looks at why credit checks are important to car finance and how to increase your chances of approval if you are struggling.
What is a credit check?
A credit check is when a lender looks at your credit report and credit score. There are two types of credit check and the most common tends to be a soft search credit check. A soft search does not harm your credit score and isn’t recorded on your credit file. It also only gives a lender access to some of your report rather than all your information. This can be useful when you’re shopping around for car finance. Once you’ve been approved and accepted the finance, a final hard search may be performed. A hard search can affect your credit score and multiple searches in a short space of time can bring your score down. A hard search also gives lenders full access to all of your report and the information listed on it. Where possible, you should try to stick to soft searches if you are looking to get a car on finance.
Why are credit checks performed by lenders?
Lenders use credit checks to see how you handle your financial commitments and if you can be trusted to pay your finance back on time and in full. A low credit score usually reflects missed payments, high levels of debt or lack of credit history. When you’ve mishandled payments in the past, you are more likely to default on your loans in the future and this increases the risk to the lender. It can be hard to get accepted for car finance with no credit check as lenders have no way to know whether you are going to pay their money back. However, there are a few ways in which you can increase the likelihood of getting a car on finance and pass a credit check.
Ways to improve your chances of getting a car loan approval:
Take some time to work on your credit.
There are so many benefits of having a good credit score and you can help increase the likelihood of getting an approval by working on your credit score. You can do this by making sure all your current repayments are made on time and in full, reducing how much debt your currently owe and keeping your credit usage low. It’s also good to not open any new accounts whilst trying to improve your credit score.
Save for a deposit.
Having some money to put down for your car finance deal in the form of a deposit, can be beneficial. Agreements such as hire purchase are based on the loan amount so putting more means that you are reducing how much you need to borrow. This can make your monthly payments more affordable but also instils more trust with the lender and could help you get approved.
Choose a cheaper car.
The more money you borrow, the higher the risk. So, it can be worth considering a cheaper car. Whilst it can be possible to get an electric car when you have bad credit, they tend to have a much higher purchase price which can increase how much you need to borrow from a lender. A cheaper car can also make your payments more affordable.
Find the right lender.
If you have bad credit or want to avoid a credit check, it can be much harder to get approved with mainstream lenders. In some cases, you may get rejected as you’re not suited to the lender. There are specialist bad credit lenders who work to help people with low scores get the finance approval they need. Alternatively, you could consider using a car finance broker too as they have access to a number of lenders at once and can help you find the lowest rates for your circumstances.
