What Checks are Done for Car Finance?
Applying for car finance is generally quite a straightforward process, with usually not too many bumps in the road. That is if you have all the necessary documentation and tick all the right boxes for all the checks.
Knowing exactly what checks are done for car finance can help you prepare beforehand and make sure you’re ready to tackle car finance head-on.
Before you Apply for Car Finance
Before you take the plunge into applying for car finance and going through the necessary checks, it’s worth at least considering why you’re doing it and if you have the proper credentials in place to not only do it but do it well.
Here is everything you should ask yourself before applying for car finance.
Do you really need it?
The first question I want you to ask yourself is “do I really need car finance?”.
Could you afford to buy a car without going through the finance route?
If so, there are a handful of reasons as to why it may be beneficial to do so, such as:
- Saving money by cutting out the interest
- Not being tied into monthly payments
- You own the car outright
- You won’t see an initial drop in your credit score as a result
Why are you applying?
If you’ve got your heart set on car finance, it’s also worth asking yourself why. Why are you applying for car finance? Are you reliant on finance? Or, are you just looking to spread the payments across more manageable monthly instalments?
Whatever the reason you may have for applying for car finance it’s important you’re doing it for the right reasons. If you’re unable to afford to run a car and sustain yourself, car finance is only going to hinder you going forward, leaving you monthly obligations you cannot reliably hold up.
What is your credit score?
This may seem quite a trivial question, but knowing what your credit score is can help you make more informed decisions about your finances - most importantly, your application for car finance.
The reason we ask this question is that more often than not your credit score does affect your ability to lease a car. However, there are lenders out there that look at affordability and consider poorer credit scores.
Whether you’re looking at your credit score as a means to improve or to check if you meet the right requirements for car finance, it’s important you understand the effect that car leasing has on your credit score and vice versa.
Knowing your credit score ahead of time gives you a rough identification of yes, whether you’ll be accepted, but also, what rates you’re likely to get. A good credit score will likely correlate with good rates, while a bad credit score is more likely to be matched with rates that aren’t as good.
There are numerous sites you can use (for free) to check your credit score, anytime, anywhere. ClearScore, Experian and Credit Karma are a few that spring to mind, which not only allow you to see your score but provide you with advice to increase your credit score over time.
What are your car finance options?
If you’re in the market for car finance it certainly pays to know the different types of car finance and to do the research to find out which one is right for you.
There are a tonne of options available for helping fund your car purchase, from personal car loans and personal contract hire (PCH) to personal contract purchase (PCP) and hire purchase (HP). Understanding your car finance options is important to a happy and comfortable future with your new set of wheels.
What Checks are Done When You Take Out Car Finance?
If you’ve made it this far chances are you’ve outlined car finance as a viable option to fund the purchase of your new vehicle. You’ve most likely checked your financial health, had a gander at your credit score and had a long, hard think about if this is the right decision for you.
But, did you know that car finance companies will make the necessary checks to ensure you’re a responsible borrower?
Knowing what these checks are may help speed up the process of getting accepted and help you to work on areas that may otherwise stick out like a sore thumb.
Proof of identity
To apply for car finance, you will need to prove you are who you say you are. You can do this by providing the following documents - as well as providing your full name, D.O.B, marital status and residential status.
Proof of address and address history
Most finance companies will not only want proof of your current address but also your address history, usually up to three years.
Don’t worry if you’ve lived at the same address for a longer period of time, this is to ensure you are contactable in case you miss any monthly payments.
Your address history can also act as a means to ensure how reliable you are, if your address history is somewhat erratic this may be cause for concern.
You will also need to provide proof of your current address. This can be shown through bills such as gas, electricity, water, council tax, Wi-Fi etc. and also your bank statement from the last three months.
Alongside your proof of address and address history, you will also need to provide your bank details. This shouldn’t be too taxing, you just need to have your account number, sort code and the branch address from the account you will be making your monthly payments from.
Employment details and history
To prove your reliability your finance company will also ask for your employment details and history. This includes your current employment details, how long you have been employed, your salary and so on.
This can also be said for the self-employed in which you will need to provide detailed summaries of your accounts, also commonly referred to as SA302s.
Proof of income
A lender may ask you to provide your proof of income as part of their car finance checks. In which case you will need to provide either your last three months' bank statements OR your last three months' payslips and employment details.
Car finance companies will use this information alongside your banking summary to understand more about your financial situation and if car finance is a viable option for you. If you have little to no money left after you have covered your other expenditures, you will most likely be denied car finance.
Unsurprisingly, since you are applying for car finance, lenders want to make sure you are legally able to drive this said car. Without a valid driving licence, your application will more than likely be revoked.
If you have lost your driving licence or it is in the process of getting amended, you are able to provide another means to prove your identity such as your passport. In the meantime, lenders will contact the DVLA to ensure that you have a valid driving licence and are legally able to drive.
Credit Score Checks
For most lenders, your credit score is the most important aspect of their finance checks, and thus your application. Your credit score is a reflection of your trustworthiness as a borrower and will provide a deeper dive into your financial situation and history.
Fortunately, if you have a good credit score you need not worry, but if your credit score is verging on poor this may be enough to either refute your application or provide you with higher than normal interest rates.
Both a soft credit check and a hard credit check will be carried out during your application (if you are accepted). A soft credit check is done when the lender will first check your credit score to see how reliable you are. If you are successful, once the terms have been agreed upon, you will then have a hard credit check on your report.
How Long Does it Take for Car Finance to be Approved?
The necessary checks will be carried out as part of your car finance application, this includes reviewing all the documentation you have provided as well as reviewing your credit score and financial situation.
All in all these checks should take between 1-2 working days, and you should hear a response within this time. After the checks have been completed, you will hear one of four responses:
- Congratulations, you have been accepted!
- You have been accepted, with the following conditions...
- Sorry, your application has been rejected.
- We need more information to approve your application.
We would advise you to ensure you have provided all the required information the first time around so your application can be processed quickly.
What is the Likelihood you will be Accepted for Car Finance?
Being accepted for car finance is down to a handful of different factors, from your address and employment history to your credit score and financial history. While it’s good practice to ensure a good level of dedication and trust in each of these areas, your main concentration should be your credit score.
Your credit score (amongst other things) can either make or break your application. Most lenders require your credit score to be good to excellent to be accepted, while it has been known for companies to accept poorer credit scores.
To be matched with a good car finance rate your credit score will need to be up to par with that, and that also means if you have a poor credit score you will likely be denied or given the option of high finance rates.
If your credit score is the only thing letting you down there are two alternatives to consider; go away, build your credit score and come back, or find a company that specialises in car leasing for those with non-existent or bad credit.
Find the Best Car Lease Deals with Pendle Leasing
Here at Pendle Leasing, we provide affordable car leasing on all the best cars. If you’d like to find out more simply fill out our contact form, or call us on 01277 549500 to speak to one of our personal advisors.
If you’re curious as to what cars we have available, browse our range of car leasing deals. We’re confident we’ll have something to catch your eye whether you’re on the market for a Fiat 500 or a Vauxhall Corsa.