How do I apply for car finance?

Things to consider before you apply

There are a number of questions you should ask yourself before taking out a car finance agreement (it’s a big decision!), these include:

• How much the car will cost altogether - It’s worth looking at the overall cost of running the car, not just your monthly finance repayments. Figure out how much it will cost you to run, including MOT, insurance, tax and petrol. This is particularly important if you’re considering a car on finance for the first time - as if you’ve previously owned a car outright, you may have been paying less (or potentially more!) than you will be with a new one.
• Consider if car finance is even right for you - It might seem obvious, but weigh up if you’d rather take out finance than buy a car outright. If you have the funds, you might want to consider buying a used car, so that you own it from the get-go and have no monthly charges. On the other hand, if you want a newer (and often more reliable) model, you may decide car finance is the way to go.
• Figure out what you can afford per month - Figure out the total cost and from this, how much you can afford on finance per month. You can then search online within this budget and find models that suit your affordability.
• Choose the right kind of car finance - Research different types of car finance, like PCP, hire purchase and personal loans. Weigh up the pros and cons of each to decide which is right for you before you start an application. You’ll need to consider things like whether you want an option to give the car back and whether you want the finance tied to the car itself.
• Consider your eligibility - Getting car finance is like applying for any type of credit, the lender will need to run a credit check and look at your circumstances. Is now the right time to take out an agreement? If you’re in a place of instability, such as between jobs, it could be worth waiting until a more stable time to help your application and the type of deal you could be offered.

Does the type of finance change the application process?

Yes, it can do - though many will follow the same basic steps.

The most popular car finance options, hire purchase (HP) and personal contract purchase (PCP) will near enough follow the process above. If you borrow straight from a dealer, this may alter slightly - as you will likely choose your car before arranging the financial terms.

If you opt for a personal loan, you’ll:

• Check your eligibility, find out how much you can borrow, over how long and at what interest rate
• You’ll state the reason for the loan as buying a car
• You’ll need to provide documents (ID and proof of income as a minimum) and a credit check will be carried out
• If approved, the money will be transferred into your bank account

The key difference here is that you don’t need to go back and confirm the car details with the lender. With a personal loan, the money you have borrowed is not secured against the vehicle in any way.

With a personal contract hire, you may not have to carry out a credit check, as this is effectively a long-term car rental - not credit to buy a vehicle.

What happens after I’ve submitted my application?

Most of the time, you’ll do an eligibility check before submitting an application, especially if you’re applying online. This means you should generally know if you’re likely to be accepted or not before the need to submit your car finance application.

The possibilities are:

• Acceptance - great, you can go ahead and find your vehicle!
• Rejection - you can try to find out why you were rejected by asking the broker or lender
• Acceptance with conditions - this is good news, but speak to the lender directly to ensure the conditions are possible for you
• A request for more information - this is very normal and it should be information or documents you can easily get your hands on

What if I’m rejected for car finance?

If you’re rejected, there could be a variety of reasons for this, but don’t give up hope.

As mentioned above, you could try to find out why from the lender or broker - and see if you can fix it. It could be related to your affordability, credit score, existing credit commitments or your debt-to-income ratio. It could also be connected to your stability - have you changed addresses a lot or moved jobs recently?

It could also be that the amount you’re asking for is more than you can borrow, in which case we’d suggest using a car finance calculator to see what amount you would be eligible for. A calculator or eligibility check is always sensible when applying for any kind of credit, as it gives you a good indication of your options, before risking a credit check.

Also, consider changing the broker or lender when you apply again. Some will accept a much broader range of credit histories (like us), including poor credit scores or thin credit.