Why you can’t get car finance & what to do

Roman Danaev

2 November 2021

If you had trouble managing money in the past, you might experience some difficulty in securing a car finance agreement. However, don’t be discouraged if you’re planning to apply or have been refused a car finance deal.

It’s important to be aware of the reasons for rejection in any case. Those who can’t get car finance will understand how to avoid it next time. And those who are yet to apply will know how to avoid this situation in the first place. Without further ado, let’s get started!

Is it hard to get accepted for car finance?

Lenders want to see that their potential customers use multiple sources of credit - from credit cards to mortgage loans - in reliable, responsible ways. If that doesn’t describe you, getting car finance can be difficult because lenders want to avoid working with high-risk borrowers. If there is a chance of the borrower not paying back the loan (or at least their financial record implies so), it might take more than one attempt.

Lenders usually examine each application on a case-by-case basis, so there are no guarantees that you will or will not get accepted. But if you want to come prepared, here are a few areas to focus on:

  • Credit score
  • Payment history
  • Income
  • Debt-to-income ratio

Reasons you can’t get finance for a car

There are hundreds of little things that can contribute to a final decision. We’ve examined 10 of the most common reasons, including ones that can be easily overlooked.

1. Unable to Confirm Your Address

There is a lot of paperwork involved, and you might simply fail to provide the information that the lender needs. In some cases, it can be intentional - for example, if borrowers don’t want to reveal their real address.

The more likely scenario, however, is entering a wrong address by mistake. Double-check all the documents before submitting and triple-check your application form before clicking Send.

2. Poor or No Credit History at All

Lenders are likely to deny any applications made by unreliable borrowers. The biggest indicator is your credit score and how long you’ve been building your credit history.

A score between 721 and 880 is considered fair or average; between 881 and 960 is good, and between 961-999 - excellent. If your score is suboptimal, boost your score with lump-sum payments, reduce your debt, and keep balances as low as possible.

Having no credit history or a short one will certainly make most car loans out of your reach. Consider getting a co-signer or just wait until your eligibility improves. If you don’t have time to work on your credit, there are still options for bad credit car finance that you can explore.

3. Age

Young drivers (between the ages of 17 and 21) are generally considered to be less experienced and responsible with cars and money. They also tend to have less disposable income, which casts doubt on their ability to keep making repayments on time.

Age is something you can’t change, so let’s focus on what you can change. At this point, your credit history is so young that you can’t afford financial mistakes. Build up a strong credit history and show decent money management skills - you can follow recommendations for building credit from the previous section.

4. Strict Lender Requirements

While car finance lenders use similar assessment criteria, they are all different. Some companies are more likely to accept riskier borrowers with bad credit, while others have more rigorous requirements and less generous terms.

You can weed out some of the stricter lenders just by researching them - on your own, through a consultant, or just by looking at their eligibility criteria on the website.

5. History of Bankruptcy

Like all negative information reported to the credit bureaus, filing any type of bankruptcy will damage your credit history. Bankruptcy is the biggest warning sign for lenders - it implies that you’re at a higher risk of late repayments (if any). They’ll be worried that if you got yourself into a bad financial position once, it might happen again.

Record of your bankruptcy stays on your credit file for 6 years. During these 6 years, you can still get car finance but on worse terms - higher interest rates and larger deposits. If you can’t get car finance with bankruptcy hanging over you, a co-signer with outstanding credit will be very helpful.

6. Loan in Default

This happens when you stop making payments on a loan or credit card according to the account’s terms. Some of the consequences of defaulting on a loan are bad credit scores, loss of collateral, and issues with collectors who’ve been sent your remaining debt. As you can guess, these missteps also raise suspicions for lenders.

You can send a short statement of no more than 200 words called a ‘Notice of Correction’ to your lender. This will be your opportunity to explain the situation from your own perspective.

If the finance company understands your circumstances, it will give you an advantage in the application process.

7. Payment Credentials

So far, we’ve mostly talked about your previous credit commitments and repayments. However, lenders also want to assess your financial stability in other ways as well.

To review your full financial profile, lenders will look at bank statements to summarise and verify your income. They will be able to tell how much money comes into your account and, of course, how much money is taken out of your account.

Interestingly, you need to take into account people you are financially connected to. If you have a joint account with someone, it can sway the lender’s decision either way.

8. Credit Technicalities

Some rejections are nothing more than a simple technicality issue. For example, you might have a credit card that you no longer use or a brand new credit one. In either case, it can cause complications because you technically have unused credit against your name. Cancel credit cards you don’t use and look for similar oversights.

9. Your Employment Status

Your employment status can be an issue if you’re:

  • Unemployed - You won’t get denied car finance straight away, but you will need to provide additional information. Since you can’t show your income (which is your repayment capacity), you need to prove you have the money available. In the worst-case scenario, lenders might ask for a very large deposit or require a guarantor regardless of any mitigating circumstances.
  • Self-employed - For some lenders, it’s the same as being unemployed. At the very least, they might think you have an unstable income. Similarly, you’ll need to prove you have the money and can afford to repay the car finance loan.

10. The Type of Driving License You Hold or the Status of Your License

Finally, your chances are slim if you don’t have a regular driving license. You may face difficulties if you have a provisional license or EU license rather than a UK one. If you are disqualified from driving (serving a ban), hold off applying for car finance until it’s lifted.

What to do if you’re refused car finance

First, find out why you’ve been rejected. It can be something as simple as an error on your part when filling, which will be easy to correct. But if it’s something more serious (one of the reasons described above), take your time to address it.

If you’ve ruled out filling mistakes, focus on your credit. It can take up to six months of regular credit activity for your file to become thick enough. So, with the help of a credit consultant or just your own research, create a plan to build a strong profile for yourself. In the meantime, contact the finance company for more information about your failed application.

Another pro tip is to look for a cheaper car. While it may not be the most favourable choice, it can help. Lowering your expectations and choosing a cheaper option can improve your reliability from the lender’s perspective.

If you feel you’ve got a healthy credit rating and you are likely to be accepted, re-apply. It’s better to leave some time between applications.

How do I know if I can get car finance?

Don’t know whether your chances are good? You have a few sources to find that out:

  • Car finance broker - They will assess your credit history and general financial situation and advise on what’s best for you.
  • Dealership - They can explain what kind of information and documentation is typically required and the steps of the loan application process.
  • Eligibility checker - See whether you meet the eligibility criteria required to qualify for a car loan online before you actually apply.

How to get approved for car finance

By now, you probably have a good understanding of what criteria lenders consider when determining whether to approve your application. For a good deal on car finance, take care of the following points:

  • Be accurate in filling in application forms;
  • Have a consistent payment history;
  • Have a steady source of income;
  • Make sure your credit report is correct;
  • Contribute to your savings to put down a bigger deposit;
  • Register to vote or update your details;
  • Consider personal loans with a guarantor or other finance options.

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

There are steps you can take to remedy the situation. First of all, you should stop applying again and again - you’ll be hurting your chances even more. Repeated rejected applications show up on your credit file and make you look desperate for cash - not what lenders what to see.

Instead, look up different car finance dealers, what terms they offer, and what criteria they use. Having an adviser or consultant will also help. The bottom line is that even if you get rejected, there might be lenders that will approve you. You just need to do your research and improve your credit situation before you apply.

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