Navigating Car Finance Refusals: Options When Loans Are Denied

Getting behind the wheel of your dream car is an exciting prospect. However, having your application for car finance rejected can be disheartening. If you’ve had your request for financing turned down, don’t despair. There are steps you can take to improve your chances of success next time.

Understand Why You Were Turned Down

The first thing to do is try to understand the reasons behind the refusal. Lenders will usually provide an explanation, detailing factors that influenced their decision. Common reasons include:

• Poor credit history – Late repayments, defaults, CCJs etc. can damage your credit rating. Lenders see this as making you a risky borrower.
• Low, irregular or insecure income – Financiers want to see that you have the means to make the monthly repayments. Insufficient or inconsistent earnings may count against you.
• Existing debt levels – If credit checks reveal numerous loans or high balances on credit cards/overdrafts, this will raise questions over whether you can afford further borrowing.

Knowing exactly why your application failed allows you to tackle those areas and improve your chances going forward.

Review Your Credit Report

Examining your credit file for any errors or omissions is advisable. False, outdated or missing information could paint an inaccurately negative financial picture. Checking everything is correct ensures lenders have the facts when assessing your application.

There are steps you can take to correct any errors and strengthen your credit rating over time. From registering on the electoral roll to paying off balances on cards/loans, various actions contribute towards rebuilding your profile.

Consider Improving Your Finances

If low income or substantial existing debts are weighing heavily, look at ways to consolidate and better manage your money. Work on creating a budget, clearing cards/loans with the highest interest rates and getting any fees/charges removed from overdrawn bank accounts.

Increasing your earnings, where feasible, also helps demonstrate to lenders you can meet future repayments. Even an extra part-time job for a short period boosts your application credentials.

Research Alternative Lenders

Whilst mainstream banks and building societies dominate the auto finance sector, various lenders operate outside these channels. Specialist sub-prime financiers approve lending for borrowers with poor credit histories. Car dealerships may have access to exclusive financing deals. Meanwhile, some brands offer attractive incentives for customers purchasing new vehicles.

Widening your options across alternative sources may reveal providers more willing to approve higher risk cases. Eligibility criteria and interest rates can differ from traditional lenders. So research thoroughly to find the most competitive car loans for which you could qualify.

Get A Secured Loan

Secured borrowing sees you pledge an asset - usually your home – as guarantee that the lender recoups their money. With your property at stake, secured car loans reduce the risk to the financier. Hence applications from borrowers with defaults, CCJs and other adverse credit often gain approval.

Just be aware that failure to repay could lead to repossession of your property to cover the debt owed. Legal, valuation and set-up fees also apply. But used prudently, secured borrowing lets people drive their dream vehicles despite credit blemishes.

Consider A Guarantor Loan

Here another person guarantees they will make your finance repayments should you be unable to. As long as your nominated guarantor has a strong credit file and sufficient income, lenders sanction the borrowing despite your own adverse history.

Using a relative or friend leverages their financial credibility without any property risk as with secured loans. But moral pressure to keep up with payments can strain relationships in cases of financial difficulty. Non-payment also damages both your and your guarantor’s credit records.

Think Carefully Before Renting Long-Term

Leasing or personal contract purchase (PCP) deals are promoted as ‘easier’, more flexible ways to acquire vehicles long-term versus traditional financing. But restrictions, excess mileage penalties and challenges in obtaining competitive finance make them problematic for some drivers.

Ensure terms permit the mileage you wish to cover and that the balloon/final payments are affordable before committing. Otherwise, future mobility may prove costlier overall than budgeting to buy your car outright. At least then you own the vehicle.

Save Up A Bigger Deposit

A more sizable upfront payment demonstrates your commitment plus your ability to gather funds. It also lowers the amount borrowed, keeping monthly costs down. For lenders, larger customer stakes show reduced risk. Boosting your deposit can be pivotal in securing car finance, especially if previously declined.

Even a few hundred pounds extra above minimum requirements indicates financial discipline. Targeting 10-15% of the purchase price is advisable for buyers with adverse histories seeking the best chance of approval.

Timeline For Reapplying After Refusal

Most lenders suggest allowing at least six months before reapplying after an initial rejection. This provides a reasonable opportunity to implement appropriate measures for enhancing your file above. Rushing back too quickly without genuine improvement may result in another bad outcome.

Appreciate that following credit problems, restoring profile suitability requires patience. But continuing with the steps outlined can help you transform from a high-risk customer back into a borrower able to access and afford the vehicle you want. Getting vehicle finance is rarely impossible regardless of your situation or history. Follow these tips to understand where your application fell down and embark on robust measures to address such weaknesses. In many cases, identifying the reasons behind any refusal is the critical first milestone on the road towards attaining those car keys.