Car Finance Declined: 5 Possible Causes

In this article, we’ll explore five possible reasons you’ve been refused car finance – from credit history to each lender’s criteria – and offer some expert tips on how to turn the tables.

1. Poor credit history

One of the most common reasons people are refused car finance is a poor credit history. Lenders rely on your credit score to assess your trustworthiness as a borrower. Credit scores are generated by credit reference agencies, which provide a credit report for car finance lenders.

Firstly, it’s important not to continually make multiple applications when you’ve been refused car finance. That’s because each hard search with a credit agency leaves a visible mark on your credit file. These can stack up and affect your credit score over time because they typically indicate previous rejections.

A history of late or missed payments on utility bills and finance repayments can drag down your credit score and make lenders cautious about approving your application. Other reasons for a bad credit score include a lack of credit history, common for younger customers, county court judgements and not being on the electoral roll.

To improve your chances, consider building a better borrowing history before submitting your next application. Joining the electoral register is a simple step to take, but you can also avoid missed payments and ensure you pay other finance agreements and bills on time.

2. High debt-to-income ratio

Mainstream lenders not only look at your credit score but also your debt-to-income ratio. This number measures the percentage of your monthly income that goes towards paying off debt. Many lenders use this to get a better idea of your current personal circumstances, rather than simply basing their decision on a low credit score or good credit score.

If you’ve been declined car finance, it may be that you’ve reached your credit limit. In other words, any more monthly payments would put you into financial difficulty. A responsible lender won’t knowingly approve your car finance application with that in mind. To lend responsibly, they need to ensure applicants meet their own criteria for affordability.

Multiple existing loans like credit card balances, a mortgage or other financial commitments can negatively affect your ability to take on additional auto finance debt. Reducing your existing debts or increasing what you earn can help lower this ratio and make your application more appealing to lenders.

3. Unrealistic expectations

Lenders want to ensure you can comfortably manage your leasing or car finance payments. If your income doesn’t meet their affordability criteria, your application may be declined.

For example, it’s unlikely you’ll be approved for a £60,000 car loan on a £30,000 salary. Car finance deals make it easier to afford a better car compared to paying money up-front, but there are still limits to what you can afford in terms of repayments.

Before applying for car finance, assess your budget and factor in all monthly expenses to determine how much you can realistically afford. Yes, that brand new Audi SQ5 Sportback set to launch in 2024 is a dream. But if it doesn’t match your borrowing power there’s a high chance you’ll be refused car finance.

4. Lack of employment stability

Stable employment is one of the most important things lenders consider when assessing car finance applications. If you’ve recently changed jobs, have gaps in your employment history or work on a temporary or freelance (self-employed) basis, lenders may view it as a risk factor and you could be refused car finance as a result.

Self-employed people usually struggle with their employment status as it’s hard to guarantee how much you’ll earn. This can be very frustrating, especially if you earn a good amount through self-employment but simply don’t meet the lender’s criteria. In this instance, it’s well worth comparing deals with a few finance companies. There are also specialist lenders for self-employed people.

Having a consistent job and regular income can increase your chances of being approved for car finance. Checking your employment status is just another form of affordability – lenders think that you’re more likely to keep up with loan repayments if you have a steady amount of money coming in each month.

5. Applying with multiple lenders

Another reason you may be refused car finance is having too many applications on your credit file. There are a few reasons for this, but above all else, it’s another factor that leads to a bad credit score (also known as a bad credit rating).

When you apply for car finance, most mainstream lenders carry out a ‘hard’ credit check as part of the screening process. As we mentioned earlier, multiple hard searches in a short period can negatively affect your credit score and make lenders wary. If you’re refused for car finance by one lender and immediately apply with another, you may be seen as a high-risk borrower.

This is why it’s important to be strategic when it comes to car finance. Working with a broker like My Car Credit can help you establish your borrowing power before sending through an application. Instead of a hard search, we’ll take a ‘soft’ search that doesn’t leave a mark on your credit score. It’s good practice to check whether a lender will perform a hard or soft search to avoid unnecessary poor credit.

Tips to boost your application

Been refused car finance? Here are some expert tips to boost your chances and get your application over the finish line:

Choose the right lender

Different lenders have different approval criteria. Some specialise in car finance for poor credit and others focus on prime borrowers. Finding a lender that aligns with your credit profile will help reduce your chances of being declined car finance.

Save for a larger deposit

A larger upfront deposit can reduce the amount you need from finance agreements and make your application more attractive to a car finance company.

Secure a guarantor

If your credit history is a concern, asking a financially responsible guarantor to co-sign your car finance agreement can improve your approval chances.

Review your budget

Make sure your budget is realistic and that you can comfortably afford the monthly payments before applying for car finance.

Improve your credit score

A proactive approach to improving your credit file can open doors to better car finance options in the future.

Refused car finance? We’re here to help

We love a good challenge at My Car Credit, which is why we’re happy to work with applicants who have been declined in the past. Instead of giving up, we see rejections as an opportunity to assess your financial situation and address outstanding issues.

We’re not a standalone mainstream lender. Instead, we’re a car finance broker, helping people get car finance by working with a large panel of lenders. This makes it easier for for us to find suitable deals and get you approved for car finance, whether it’s hire purchase, personal contract purchase or leasing.

Give our free car finance calculator today!