How to get a new car finance deal after being rejected

If you applied for car finance but were turned down, there are usually things you can improve for next time.

Being turned down for car finance can be surprising and upsetting. Not only does it throw all your plans into chaos, it also means you might not be as attractive to lenders as maybe you thought.

Don’t despair though, because there are measures you can take to make yourself more attractive to lenders, meaning that the next time you apply for car finance, your chances of success are higher.

It’s important to realise how lenders think. They are notoriously risk averse – they want to make sure that they will get their money back, and go to great lengths to assess applications accordingly.

A major tool in this process is credit history. Everyone applying for credit has one, and it’s an evidence trail of past performance when it comes to credit and borrowing money. Every time you use a credit card, sign up for a new phone contract or do anything that involves an element of credit, you’re adding to that history. It’s compiled by organisations called credit reference agencies

This history creates a credit rating and an associated score, and this forms a large part of a finance provider’s investigations into you when you apply for car finance. A good credit score means a high likelihood of success in your application, but a low credit score can mean high interest rates or even a rejection of your application.

Many things can affect your credit rating. Missing a payment on a loan, a credit card or a mobile phone contract can leave a black mark on your credit history, and it doesn’t take many of these to lower your score.

Conversely, a history of responsible borrowing and timely repayment can really help give your credit score a boost.

Why was I declined car finance and how do I stop it happening again?

It’s worth asking your lender why you were turned down, rather than speculating. It could be something as simple as a mistake in your application, or you could have a bad credit rating, or just not much finance history. Although you’re not guaranteed a response, an answer indicating the reason can help you determine your next steps to stop another rejection in the future.

Otherwise, it’s best to check every aspect of your application, and check your credit history to make sure it’s up to date and free from mistakes. If you’re not already on the electoral roll, register for it to provide extra reassurance to potential lenders that you are who you say you are, and live where you say you live.

Review your various expenses and your income, and see if there are any existing credit agreements that you can pay off – doing so can boost your credit score. If you’ve got any accounts or credit cards that you don’t use any more, close them down – lenders will take them into account when working out how much unused credit is available to you.

If you have financial connections, such as joint accounts, to people with poor credit history, sever them. Their low credit score will drag yours down with them.

Taking these steps should improve your credit score, although it’ll take a few weeks for everything to feed through to your file.

How long should I wait before applying for car finance after being refused?

Don’t go straight from one failed application into another, even if you think you’ve improved your situation. This is because every credit application adds a mark to your history, and can be seen by other lenders, although they can’t see if it’s been successful or not.

Multiple applications in a short space of time can give the impression of someone desperate for money, which can lower your credit score and make risk-averse lenders nervous. Wait for a couple of weeks before applying again.

Borrow less and choose a cheaper car

If you’ve been rejected for finance, your chances will be improved if you apply to borrow less. Perhaps you could provide a larger deposit to reduce the extra you need to finance, or simply choose a cheaper car. You could find you’re now within the lender’s limit for your circumstances.

Choosing a cheaper car doesn’t necessarily mean you need to drastically change your plans, or even change the make and model or car you’re after. Look at cars a year or two older, or with a higher mileage, or with a lower trim level. Or investigate rival cars that cost less.

Consider Hire Purchase or PCP

If you’ve been rejected for an unsecured loan for a car, you could consider a finance product secure against the car, such as Hire Purchase (HP) or Personal Contract Purchase (PCP). Straight loans tend to be viewed as higher risk by lenders, because they’re not legally attached to anything.

HP and PCP are finance products that add an extra layer of security for lenders, because if you don’t pay up, they can take the car back. For that reason, PCP and HP finance deals tend to be easier to successfully apply for than an unsecured bank loan.

Try a specialist lender

If you can’t change your car expectations, you’ve done all you can to polish up your application and you still can’t get a loan or finance from the traditional lenders, you could try one that specialises in borrowers with less-than-spectacular credit histories.

If you have a poor credit score then you’ll likely have to pay more interest than other borrowers, but you may be able to secure the cash you need for your car.

There are pitfalls, however. Watch out for predatory lenders promising guaranteed loans, and while higher interest rates are to be expected, avoid loans with sky-high rates that could put you in a worse financial position. With all car finance, it’s a good idea to get like-for-like quotes from different suppliers, so you can compare the breakdown in costs and see which deal will give you the best value.