Why have I been refused car finance?
Without looking at the specifics of your credit history and car finance application, it’s impossible to say why you’ve been turned down. There are many potential reasons and some of them are perhaps more nebulous than you’d imagine.
Here we’ll try and clarify some of the issues as they arise in response to frequently asked questions on the subject.
Why has my application been refused when I have no CCJs or other credit history problems?
In these circumstances, you may have been turned down due to one of the following:
- you’re looking to borrow more on car finance than the potential lender believes you can sensibly afford to repay given your income versus your other existing outgoings;
- the price you’ve agreed for your vehicle may be too high, in the lender’s opinion, meaning they’d be advancing more than they believe the car is worth.
If you’re thinking that’s not their concern, they will see it differently! They’ll be worried about how much they might be able to get for the vehicle if they have to reclaim it from you and then sell it in the event of you defaulting on the loan;
- your credit history shows you’ve been turned down for other loan applications (for whatever reason);
- an error on your credit history files. This can happen and you have a right to access a copy of your record to check that it’s accurate;
- you’re unemployed (or in some situations, self-employed);
- the lender can’t find you on the electoral register;
- paradoxically, because you have no history of previous successful borrowing!
There are, in fact, many other issues that could lead to the refusal of your car loan application which might not be related or directly linked to a ‘bad debt history’ as such.
Why do some people get motor loans with CCJs and I can’t?
A lot depends upon the policies and risk evaluation criteria of the lender you’ve approached and applied to. Some companies simply see things differently to others.
Remember too that the lender will typically be looking at the totality of your credit history and CCJs are only a part of that.
How can I clean up my credit history quickly to get a car loan?
You can’t — at least not ‘quickly’.
Certain problems on your history files will work their way off your records over time. You can also ask for credit history information providers to put explanatory notes on your files in certain circumstances.
You may be able to, in effect, ‘dilute’ some of the challenges on your files by successfully applying for and then repaying correctly, another loan. That’s something positive for potential lenders in future to see and that might help offset some of the negatives.
Be exceptionally cautious of companies who offer chargeable services claiming to be able to ‘clean up’ your credit history files.
Are all credit history file problems of similar seriousness?
Generalisation is risky but lenders typically may not be too worried about, for example, evidence of a couple of late payments on your credit card. By contrast, as you might expect, loan defaults and CCJs will be more concerning to them.
Why do I see advice about not applying for lots of loans?
More correctly, the advice is typically along the lines of not applying for lots of individual loans at a time when your credit history means that you’ll struggle to find one.
That’s because when they’re refused a loan, some people revert to a ‘shotgun scatter’ approach to their applications. They send lots and lots out there hoping that they’ll get a favourable reception with at least one.
Unfortunately, every time you apply for a loan and are refused, that is recorded on your credit history files too. So, having lots of refusals on your records may be alarming to other potential lenders.