When you apply for car finance, lenders will perform checks to make sure you’re reliable and will pay back the loan.
There are a couple of things you’ll need to supply, including proof of your address, income, and identity, and you’ll also go through hard and soft credit checks to look at your credit history.
Credit checks for car finance UK
A good credit history will usually mean lower interest rates, whereas a poor credit history can see those interest rates increase. There are two different types of credit check – soft and hard.
Soft credit checks for car finance
A soft credit check will typically be carried out by the finance company to get a good idea of your general credit history. These types of checks will look at your ability to manage loan repayments and will enable you to be approved for an agreement in principle.
Soft checks only access base information on your credit history, so they don’t offer an in-depth look. They also don’t leave any marks on your credit report, which is a bonus, as too many credit checks can really damage your score.
Hard credit checks for car finance
A hard credit check is the big one – it looks at your full history, so the lender can get the full insight to your money habits.
These sorts of checks are carried out after you have an initial agreement with the finance company, at a point where you’ve found a deal that takes your fancy and you’re ready to move ahead.
Hard credit checks leave a permanent mark on your credit history and too many can be unattractive to lenders. If you’re seen to have too many hard checks on your report, some finance companies may see this as a sign of bad money management, so make sure you’re happy with the deal before the hard check goes ahead.
What do car finance companies check?
To get approved for car finance, you’ll need to pass some details to your finance company that will give them an idea of who you are and if you can pay back the loan. It’s important that you check this information is correct to avoid any issues with your application.
Proof of identity
Car finance companies will need to make sure you’re not committing fraud and are who you say you are. They’ll need your full name and any previous names, date of birth, marriage status, and residential status. Quite often you can offer your driver’s licence as a solid proof of identity.
A minimum of three years’ address history needs to be passed on to the lender – utility bills like your gas or water will do the job just fine. Even the smallest spelling errors or mistakes in your address history can cause issues, so make sure you check it over before sending it off.
This is probably the most important part – lenders want to know if you can pay for your car finance. The lender looks for payments going into your account that match the income you declared on your application and also ensures you're able to pay monthly instalments for the loan. Self-employed people may need to provide more evidence of this, but usually a bank statement will be enough.
A lot of finance companies will reject applications if a full driving licence can’t be provided, so be sure to have yours when doing your application.
Your car finance company will also want to know you’ve got a way to keep up payments. You’ll have to provide your employment history, job title and salary as part of your application.
This is another important one – there are three main credit reference agencies that will use your credit history to generate a score, making sure you’ve got a good record of repaying your debts.
If you haven’t got the best credit history, or maybe you’ve just arrived in the UK and have no credit history at all, you can find out some ways that could help make car finance work over in our guides.
How long does it take for car finance to be approved?
Luckily, you won't have to wait too long to hear back – approval for car finance will usually take between 1-2 business days.
Will I get accepted for car finance?
If you have good credit history, an accurate application, and are eligible, you should be approved for car finance.