Refused car finance? How to secure a new car finance deal

Not every lender is the same. If you've been refused car finance in the past, read our tips to put yourself in a better position this time

John Evans
Jul 30, 2019

You’ve got your hopes set on a new car and then – crash! – your plans are derailed as the bank tells you it can't lend you the money to buy it.

You’re surprised, not least because you think you’re pretty good with money but lenders are risk averse and know more about your financial performance than you probably give them credit for, if you’ll pardon the pun.

The fact is, every time you use credit, be it paying for something with a credit card, taking out a new phone contract or any one of the hundreds of different financial transactions we do almost without thinking, you leave a trail that’s picked up by organisations called credit reference agencies.

Based on this history, the agencies award you a so-called credit rating. Lenders refer to this rating when calculating their own rating upon which they base their lending decision. The lower your score, the less likely they are to lend you the money you want and even if they do, it may be at a higher interest rate.

Many things, ranging from missing just one finance payment to having too many loans negatively affect your credit rating.

So what can you do if you’ve been refused a loan? With the help of Lisa Hardstaff, credit information expert at Equifax, a credit reference agency, we guide you through your options.

Car deals with PCP finance

Why was I refused car finance?

There’s no harm in asking the lender why they turned you down. Perhaps you once missed a finance repayment or exceeded your existing credit limit in the past.

Perhaps the lender cannot confirm your address, you made a mistake in your application, you have what is called a ‘thin history’ because you haven’t borrowed much in the past - meaning it's hard for the lender to gauge how likely you are to pay them back - you’re financially associated with someone who has a bad credit history (a current or former partner, for example) or you simply aren't the lender’s target market. Read our guide to what to do if you have no credit history - or even a thin history.

If you’re not happy with their responses, check your credit history with the agencies (it’s free and the lender will tell you which agency it used) to see if there are errors in it that need clearing up or information that requires clarifying.

How do I increase my credit score?

Review your financial commitments and check if you have existing credit agreements you can settle early. Close dormant cards and accounts because lenders take them into account when calculating the total amount of unutilised credit available to you.

Sever any financial connections you have with people who have a poor credit history - by cancelling joint accounts, for instance - because their low score drags yours down, too. Taking these steps will improve your credit score; not overnight but within weeks. Find out if your credit score is good enough for car finance here.

Turned down? Take a deep breath...

Having been turned down by one lender, don't immediately try a fresh one. Each credit application you make goes into your credit history where it can be seen by other lenders.

You may think applying for a loan is perfectly harmless but to lenders making multiple applications makes it seem as if you're stretching your credit limit to breaking point. As a result, they’ll reduce your credit score still further. A couple of weeks between applications should be fine.

Consider buying a cheaper car and borrowing less

Reviewing your finances and your repayment obligations may persuade you that lowering your sights and choosing a cheaper car is the right way forward. Since you’ll be borrowing less money, when you reapply, you may find you’re now within the lender’s credit limit.

Hire purchase or PCP can help

So far, we’ve been talking about so-called unsecured loans where the loan isn't legally related to a specific item such as a house. This is why your credit score or rating has to be high because the lender is more exposed if you fail to make payments on the loan.

A loan secured against an item such as a car is more appealing to lenders because if you fail to make the repayments, there is something tangible and legally related to the loan that they can reclaim. It’s for this reason that secured loans, such as hire purchase (HP) and personal contract purchase (PCP), can be easier to obtain than an unsecured bank loan.

You arrange these when purchasing the car, too, which saves you time compared with having to find a decent loan and track down a car with a good cash price that you can purchase. However, expect to have to put down a deposit of at least 10%, although you may find the interest charged on the balance is lower.

Approach a specialist lender

If you’re dead set on having a particular car come what may but you can't get a loan - either secured or non-secured - from traditional lenders, try a specialist lender with experience of borrowers with below-par credit histories. We work with lenders that consider those who don't have a perfect credit score, so should be able to help most drivers to find finance.

However, remember that if your credit score is poor you can expect to pay a higher interest rate. And be warned: those that advertise 0% APR finance on used cars may not charge interest, but they will have increased the price of the car to compensate, so either way you’ll be paying a premium for finance.

                      

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