Having car finance refused feels like being kicked when you're down.
You're not just missing out on that shiny motor you had your heart set on – you'll also have an unsuccessful application on your credit history, which could make it harder to get finance accepted in the near future.
All is not lost, however. There are things you can do to improve your chances of being accepted next time.
What does it mean to have car finance refused?
Everyone who wants car finance must apply to a lender to see if they'll get accepted. At Motorpoint, for example, we work with a group of lenders to find the best option for our customers.
A finance lender will look at your credit score and history, and the vehicle you're applying to finance. If the lender decides the car isn't affordable for you, or that there's too great a chance you'll fail to repay your finance, it'll refuse your application.
That means you won't be able to purchase the car on finance. If you still want that car or another model, you'll have to find another way to pay for it.
Why would I be refused car finance?
Common reasons for car finance being denied are:
Affordability
If the lender decides that the repayments are too high compared to the amount of money you earn every month, they'll refuse your application as there's too much risk that you'll miss a repayment.
A poor credit score
A poor credit score is usually the result of a patchy credit history, including late payments and defaults. Lenders will take this as a warning sign that you may not keep up with repayments and will refuse your application. Note that you might also have a poor credit score if you have little or no credit history – you can opt to pay bills by direct debit or get a credit-building credit card to establish good credit history.
Being self-employed or unemployed
People who are self-employed might find it harder to demonstrate a stable source of earnings to a finance lender. If you are able to demonstrate around three years of consistent earnings, it's worth contacting the lender to see if they'll accept that as proof.
If you're unemployed, you'll find it harder to get approved for finance as there'll be no proof to the lender that you'll have the money available to make the monthly repayments.
Incorrect details
A simple mistake on your application form can be enough for a lender to refuse finance. If you believe your credit score is good and the finance is affordable, it's worth checking you entered all your details correctly as this might be why the application was refused. It's also worth making sure you're registered on the electoral role at your correct address.
Too many recent credit checks
If there's a cluster of hard credit checks on your history, lenders will see that as a sign that you're getting repeatedly refused for applications. Lots of applications over a short period means you're less likely to get accepted for another application, so it's best to wait and establish the reason for rejection before reapplying somewhere else.
Age
You need to be 18 years old to apply for car finance. So, if you're a 17-year-old who just passed their test – congratulations – you're best off waiting until your 18th birthday to start applying for finance.
What can I do if I'm refused car finance?
Contact the lender to find out why
Most lenders will let you get in touch to find out why your application has been rejected. This is a more useful strategy than blindly applying again in the hopes of getting accepted. It'll let you establish what the actual problem is, so you can be more targeted in your efforts to fix it.
Choose a more affordable car
If you were rejected on the grounds of affordability, you might need to manage your expectations and get a cheaper car. A lower monthly payment will be less of a hit on your monthly earnings, increasing the likelihood you'll be able to make every repayment. Motorpoint has lots of used cars available for less than £199 per month.
Improve your credit score
If your credit score caused you to get rejected then it's a good idea to try to improve it before applying again. There are several ways you can do this including registering for the electoral roll, making sure all your debts are paid on time, and carefully using a credit card to demonstrate good repayment habits.
Find another way to pay for a car
If there's no quick fix for your credit score, you might need to rethink buying a car on finance. You could, instead, save up a smaller amount of cash and purchase an older car outright. This will at least let you get on the road, although it won't directly help improve your credit score.
