Thinking about applying for a car loan, but unsure whether you’ll be approved? If you’re new to credit, or you’ve not had a good relationship with credit in the past, it can be nerve-wracking applying for a new loan. So, what can you do to improve your chances of being approved?
Check Your Credit Report
Before you apply for any type of credit, whether that’s a car loan, a credit card, or a home loan, you should always check your credit report first. Why? Because that’s one of the first things your credit provider will do when assessing your application.
Your credit report contains important information regarding your history with credit, allowing potential credit providers to determine how well you will likely deal with credit if they approve your application. The information included in your credit report – such as your repayment history, and any defaults or bankruptcies in your name – is used to create a credit score, which credit providers can also use to rank your creditworthiness.
Improve Your Credit
If your credit score is not awesome, you may want to improve it before you apply for that car loan. You can improve your credit score by making repayments on all your current loans and credit cards on time, and by paying down your debt. If you notice any errors in your credit report, apply to have them corrected, as they may be bringing your credit score down.
Pay Down Debt
When you apply for a car loan, the lender will look at your income and your outgoings. If your debt is too high relative to your income, the lender may reject your application. Before applying, look at your current outgoings, paying particular attention to your debt. If your debt makes up more than 35% of your income, you should look at paying it down before applying for any more credit.
Increase Your Deposit
While it’s not essential to put down a deposit on a car when you buy it, you may find doing so increases your chances of getting approved when you apply for finance. Why? When you increase the deposit, you are essentially reducing the amount you need to borrow. By lowering the loan amount, you are making yourself more appealing to the lender by lowering the risk on the loan.
Find A Guarantor
Another way to lower the risk on your loan is to ask a trusted friend or family member to act as a guarantor. A guarantor basically guarantees the loan, so that if you fail to repay it, your guarantor becomes liable for the amount yet to be repaid. When looking for a guarantor, try to choose someone with good credit and a stable income – and remember, it’s a big ask.
Don’t Overextend Yourself
When assessing your application, the lender will look at what you can afford to pay in repayments each month. Use a car loan calculator to compare loan options, taking into account not only the cost of the loan repayments, but the cost of running the car. Choose a loan repayment schedule that you know you can comfortably afford, creating a budget to cut back if necessary.
Choose The Right Type Of Loan
Secured or unsecured? New car or used car? Fixed rate or variable rate? There are plenty of options to think about as you compare car loans, and it’s important to choose the right type of car loan to suit your needs. You may find some car loans are easier to get approved for than others, for example, secured loans are lower risk for the lender than unsecured loans, which can make them easier to get approved for.
Choose The Right Lender
It’s also a good idea to think about which lender you want to approach. You may find some lenders are more open minded than others, especially when it comes to borrowers with bad credit. If you have a longstanding relationship with your bank, having spent many years building your savings and always paying your credit card repayments on time, you may find it easier to get approved there, compared to another lender that you have no background with.
Read The Small Print
Always. Read. The. Small. Print. Yes, it’s boring and time consuming, but reading the small print will tell you all you need to know about the car loan before you apply. Be sure to pay particular attention to the lender’s eligibility criteria, and make sure you meet it, or don’t bother applying.