Car finance is one of the most popular ways of purchasing a new, nearly new or even used car. Being able to break down the total cost of your new car into manageable monthly payments means that many drivers can get access to cars that they simply would never be able to afford if they had to save up money to pay with cash.
Borrowing from friends and family also has many potential pitfalls and problems that make choosing car finance an attractive option.
But the world of car finance can be a mystery to many people, especially if you have no experience with taking out a credit agreement. One of the biggest questions many people have is also one of the most important – do I qualify for car finance?
The good news is that the chances are you do qualify. In this article, we will explain all you need to know about qualifying for car finance. But first things first …
Some unscrupulous finance brokers or providers online will advertise themselves as being able to guarantee you being accepted a car finance package. However, this is simply not possible. All car finance packages are based on the individual applicant and their credit history (more on this below).
Any company promising that they can guarantee you getting a package is either; a) lying to get you interested, or b) not a legitimate company and therefore should be avoided.
When you apply for car finance or any form of finance agreement, you should choose a company that is FCA approved and regulated, like Creditplus.
The biggest factor of a car finance agreement and your eligibility is to do with your credit rating. A credit rating, sometimes referred to as a credit score, is a rating based on a number of different factors that lenders look at to see what your financial status is like and how much of a risk you are to lend to.
The rating is normally divided into five categories – excellent, good, fair or average, poor and bad.
Those with an excellent credit rating have a spotless record when it comes to finance. They have met all the payments they needed to make on time and promptly, have an address history that is fully traceable, and have not had any CCJs (county court judgments) or defaults on their file.
At the other end of the scale is bad. Those with this rating tend to have a history of missed payments, or issues where they have had to default on a finance package. They may have even had to declare bankruptcy.
The better the credit rating you have, the more likely you are to be approved for a finance package with an excellent rate. However, just because you have a bad credit rating, it doesn’t mean you won’t qualify for a finance package. It just means that any finance provider will see you as more of a risky investment, and so the terms will be more in their favour.
Another factor when it comes to eligibility for car finance is your recent personal history. This is divided between your address history and employment history.
You will often have to provide the addresses you have lived at over the past three to four years. The reason is so that the finance provider can check if you are a permanent resident in the country, have any issues related to those past addresses, and can also see if you have a history of moving around a lot.
Moving from house to house in a short space of time could suggest you have had financial issues related to your accommodation. This is a potential red flag to providers unless you can provide a good reason for your movements.
Employment history is used to see if you have been keeping a steady income over the past few years. Finance providers want to make sure you can make the payments. Not just for their interests, but it is also becoming more important for providers to prove that they are providing finance to those that can afford it. You may need to supply a copy of your most recent payslip to prove your income.
If you are self-employed, you may need to provide a number of different documents, including bank statements, as it is not as easy to prove your income. But as long as you have a steady income, you shouldn’t have a problem.
There are some age limits on car finance you should be aware of. If you are under 21, you are unlikely to have enough of a credit history to prove your eligibility for a finance package. In this case, you might want to consider using a guarantor to help get you the car you want.
Some lenders also have an upper age limit, normally around the age of 75 at the start of the agreement. However, some finance providers will accept pension payments towards the cost of your finance package, so if you are retired, it doesn’t necessarily mean you will be rejected.
If you are on some sort of benefits or government assistance scheme, you can still be accepted for a car finance package. Providing you can prove that over half of your income does not come from these programs, then you should still be able to find a package.
You may also have an issue where you have never applied for a finance package before. Even if you have good savings and have never been in debt, not having any history of applying and taking out a finance package means you have not demonstrated you can meet payments on time and be a good customer.
This may seem a bit absurd, but car finance is all about proving how much or less of a risk you are. The more evidence you have to support your application, the better!
When you apply for car finance with Creditplus, your dedicated customer advisor will talk you through the entire process. Whatever questions you may have, they will be happy to answer. Creditplus are regulated by the FCA, and committed to providing an open and honest service to our customers, so you can feel confident that you have all the information you need to make the right decision about your car finance package.