What Do Car Finance Lenders Look For When You Apply For Finance?

In this blog…

👉What do car finance companies look for in credit reports?
👉Is a good credit score important when applying for car finance?
👉How to improve your credit score
👉How you can check your credit score

Your credit score matters when applying for car finance. Car Finance lenders use it to decide if they'll give you a loan and what the terms will be. Your credit score shows how good you are at managing your money. It's based on your borrowing history, whether you’ve paid your bills on time, and how long you’ve used credit.

What Do Car Finance Lenders Look For When You Apply?

• Payment history: Do you pay your bills on time? Do you have any CCJs or bankruptcies?
• Credit utilisation: Do you use a lot of your credit limit? You should always try to keep balances below 30%
• Credit mix: Do you have different types of credit, like a mortgage, credit card, and car loan?
• Addresses: Are you registered to vote? Have you lived in your house for over 3 years?
• Length of credit history: How long have you been using credit?
  

Lenders might also consider how many times you've applied for credit recently. Too many applications can make you look like a risk. They might also check if you rely too much on your overdraft, which can show that you're struggling with money. Finally, lenders will ensure you can afford the loan you're asking for. They'll look at your income and expenses to see if you can handle the monthly payments.

All these factors are looked at when a lender is deciding if you’re suitable for a loan. They want to know if you're responsible with money and if you'll pay them back.

Is A Good Credit Score Important When Applying For Car Finance? 

Your credit score is really important when getting a car loan. A good credit score means you'll probably get a lower interest rate, which can save you a lot of money. However, a bad credit score could mean a higher interest rate, which will cost you more in the long run.

We’d always recommend checking your credit score before applying for credit; that way, you can know what type of finance offers to expect.

Click here to learn more about your credit score impacts your car finance application

How To Improve Your Credit Score

• Pay your bills on time: This is the most important thing. Late or missed payments can have a big impact on your credit score.
• Keep your credit card balances low: Try to spend less than 30% of your credit limit.
• Have a variety of credit accounts: This shows you're responsible with money.
• Don't apply for too much credit at once: Lenders can see how many hard credit search applications you’ve made in the last 12 months. Try not to apply for more than 4 new types of credit each year.
• Choose companies that do soft credit checks when you apply for finance: soft credit checks allow you to check if you’re likely to be approved for finance without leaving an impact on your credit score.

Check out our full article on boosting your credit score here.

How Can I Check My Credit Score? 

There are a few ways you can keep up to date with your credit score:

• Credit Reference Agencies: You can create a free or paid-for account with the UKs major credit reference agencies: Experian, Equifax, and TransUnion
• Free Monitoring Sites: ClearScore is a great tool to use if you want to get a good idea of your credit score without parting with any cash.
• Some Credit Card Companies & Banks: Some banks offer a free credit score tool on their online app!

It's a good idea to check your credit score regularly to make sure it's correct and to see if anything has changed.

Closing Thoughts

Your credit score affects your car loan. Lenders look at things like your payment history, how much you use your credit, what types of credit you have, and how long you've been using credit. A good credit score means you'll probably get a lower interest rate on your car loan. If you have a bad credit score, you can improve it to get better terms in the future.

Looking To Apply For Car Finance?

Marsh Finance offers a FREE pre-approval check that has no impact on your credit score. Our online application takes just 30 seconds; get started below! 

This is for illustrative purposes only and is not a quote or an offer of finance.