Being refused car finance in the current climate

[resolve10]

I placed a deposit on a £26,000 car yesterday. Dealer said they had to have the finance approved but assumed this would be a formality based on past experience.

For context, I'm 34 and own my own home (no mortgage). Earn between 30-40k per year, and currently own a car also worth £26k which has £26k of credit against it, so essentially the deal was to trade-in my current car and the dealer clear the finance, then a new agreement for same amount of money (but lower debt as I would be dropping from 5.9% APR to 0% on the new car).

I had a call this morning to say I'd failed the application and they could give me no more information.

I have three theories as to why but I want to get some thoughts on them;

1) The deal was 0% APR - could this mean they are more strict regarding lending criteria?

2) I currently have £26k against my name, but the dealer explained to their finance company this would be cleared and wouldn't be in addition to the new £26k deal. However, could this have been a factor anyway?

3) Could there be an error somewhere on my credit file causing a detail not to match up? Seems unlikely as I easily obtained credit for a £37k car two years ago.

I'm pretty fed up about the whole situation as I spent a lot of time researching the car and doing the sums to make sure it was the right time to get out of my current car. I also don't know how this whole episode will affect my future credit applications.

[resolve10]

Never missed a payment for anything, and Experian reckon it's 999 !

[samoht]

My gut feeling would be that lending criteria generally have tightened in anticipation of an economic downturn, and that they thought your salary wasn't enough to support the debt.

Your salary seems relatively low but the fact you own your home outright without a mortgage (rare at your age) means you're obviously well able to spend a fair bit on a car. I wonder if they haven't fully taken the lack of housing costs into account, just set salary against debt and said no?

Some sort of error is also quite possible, no idea how you go about addressing it though.

[scoey1001]

Check Equifax aswell, you can get a free statutory credit report on there which gives quite a bit of info.

[resolve10]

samoht said:

Your salary seems relatively low but the fact you own your home outright without a mortgage means you're obviously well able to spend a fair bit on a car. I wonder if they haven't fully taken the lack of housing costs into account, just set salary against debt and said no?

Yeah that's a fair summary. I'm pretty organised and strict with my budgeting and don't overspend on things, so I like to treat myself when it comes to cars. The thing that's really frustrating is I would actually be reducing my debt - the new car would have saved me around £1k in interest and is also cheaper to run.

[resolve10]

scoey1001 said:

Check Equifax aswell, you can get a free statutory credit report on there which gives quite a bit of info.

Thank you, just checked this out and signed up. Says my score is 484 'Excellent'. I've had a look through the detailed report and nothing jumps out as being incorrect.

[ChrisH72]

I’d guess that your first theory is correct and that it has something to do with the 0% finance.

Probably nothing at all wrong with your credit score. It makes you wonder if anyone would qualify for the 0% offer or wether that is just a carrot to draw you in to purchasing in the first place?

Have the dealership offered you any solution? I presume they would still like you to buy the car?

If the car is cheaper to run and the rate they offer is less than you are currently paying then it could still be worth going for?

[R2x]

Did you confirm with the dealer that they’d submitted all of your details correctly?

My understanding of the key points checked::
1) that you haven’t missed any other car payments (or any other types of payments) in recent years
2) that your outgoings don’t exceed your income, which with no outstanding mortgage sounds unlikely

I have had a car on PCP credit in the past, and the finance company asked if I’d be VT’ing this car before they accepted my finance application for a lease. So they can come back and ask questions about this kind of thing before saying yes/no to a new car.

Unfortunately, on rare occasions, credit can also be declined with absolutely no reason as to why.

[resolve10]

ChrisH72 said:

I’d guess that your first theory is correct and that it has something to do with the 0% finance.

Probably nothing at all wrong with your credit score. It makes you wonder if anyone would qualify for the 0% offer or wether that is just a carrot to draw you in to purchasing in the first place?

Have the dealership offered you any solution? I presume they would still like you to buy the car?

If the car is cheaper to run and the rate they offer is less than you are currently paying then it could still be worth going for?

They have offered a discount of £1,500 from the car and proposed a PCP (which I would still have to go through approval for) but at 9.9% APR, which I would not entertain at all.

I have to say whilst the salesman has been pleasant throughout, I never got the sense that the were massively keen to sell me the car.

[ChrisH72]

As frustrating as it might be, if it’s a car you like I would walk away and try to find a similar car elsewhere.

Depends how much of a rush you’re in? Maybe just keep looking for better deals, something will come up.

[HocusPocus]

Lenders changed their loan criteria last month to exclude all borrowers in hospitality industry.
https://www.bbc.co.uk/news/uk-scotland-edinburgh-e...

[ChocolateFrog]

I'd guess it's number 2.

Never underestimate the ineptitude of people.

The finance company is probably unaware that the existing debt will be settled. If you can't get the finance then who could? Assuming you don't have 6 dependents to worry about.

[resolve10]

HocusPocus said:

Lenders changed their loan criteria last month to exclude all borrowers in hospitality industry.
https://www.bbc.co.uk/news/uk-scotland-edinburgh-e...

That's an interesting article, and seems grossly unfair on the face of it. It's not the case here though, I don't work in hospitality.

ChocolateFrog said:

I'd guess it's number 2.

Never underestimate the ineptitude of people.

The finance company is probably unaware that the existing debt will be settled. If you can't get the finance then who could? Assuming you don't have 6 dependents to worry about.

2 dependants. That's what I was thinking too, that car will sit for a good while if they are setting the bar that high.

[Blackpuddin]

My cynical guess is its a headline grabbing rate for a deal nobody will qualify for. They'll probably offer you something else which you miraculously will qualify for but it won't be 0%. I'd be worried about a knockback appearing on my credit rating.

[scoey1001]

What would the numbers work out like if you were to sell your car privately (get more than trade in), clear the credit and then take out a personal loan. Obviously a bit of hassle selling your car but if there is good demand it might not be too painful.

[Louis Balfour]

resolve10 said:

I placed a deposit on a £26,000 car yesterday. Dealer said they had to have the finance approved but assumed this would be a formality based on past experience.

For context, I'm 34 and own my own home (no mortgage). Earn between 30-40k per year, and currently own a car also worth £26k which has £26k of credit against it, so essentially the deal was to trade-in my current car and the dealer clear the finance, then a new agreement for same amount of money (but lower debt as I would be dropping from 5.9% APR to 0% on the new car).

I had a call this morning to say I'd failed the application and they could give me no more information.

I have three theories as to why but I want to get some thoughts on them;

1) The deal was 0% APR - could this mean they are more strict regarding lending criteria?

2) I currently have £26k against my name, but the dealer explained to their finance company this would be cleared and wouldn't be in addition to the new £26k deal. However, could this have been a factor anyway?

3) Could there be an error somewhere on my credit file causing a detail not to match up? Seems unlikely as I easily obtained credit for a £37k car two years ago.

I'm pretty fed up about the whole situation as I spent a lot of time researching the car and doing the sums to make sure it was the right time to get out of my current car. I also don't know how this whole episode will affect my future credit applications.

In my experience, a number of the large financial institutions went wobbly after lockdown 1, and started doing daft stuff. My business had some challenges with asset finance and I with a credit card, despite neither of us putting a foot wrong ever. Our customers equally had issues with financial institutions pulling finance on the most flimsy of bases.

One of the institutions wrote to me saying "Sorry we couldn't do something quite straightforward and low risk on this occasion. It would be apparent to a halfwit that we either haven't looked at the application properly, haven't understood it or otherwise just aren't interested. If you think we have made a mistake, email Karen Karrenn at [e-mail] and explain why"

So I emailed Karen and in due course received a letter, "Dear Mr Balfour, we have considered your representation carefully by consigning it immediately to the bin. Having reviewed our processes, I can confirm that the reason we have declined your business's application is because NO".

I think the truth is that some of them just froze all business, but didn't want to say that is what they had done. I also think that applications for vanilla lending, like car finance for someone such as you, are not currently a foregone conclusion. I think lenders have applied some opaque criteria that mean that perfectly creditworthy people are being declined, because they happen to fall into a category that a year ago would not have existed or been a problem.

In summary, it probably isn't you. Don't take it personally, find a decent broker and accept that you won't be getting the 0% deal.

[tickedon]

Similar perfect finance and credit record to you - went into a Three shop a couple of weeks ago and was declined for a 1 month rolling sim only plan(!). Wasn’t convinced the shop sales assistant had paid any attention or accuracy entering my details - and slightest discrepancy they can’t match will lead to a decline.

Sure enough, a few days later they sold me a 12 month deal online when I’d entered everything myself!

Worth asking the dealer for a copy of the application to check it’s all accurate?

[carreauchompeur]

I think it’s probably something to do with the 0% deal...cynically I’d say that they want a certain number of applicants who might default and therefore be switched onto a higher APR deal?!

[carreauchompeur]

Since this is PH though, I’d say you don’t need finance and should save up for it

[Dinoboy]

How large a deposit were you putting down on the car, could that have an effect on acceptance?
The finance company is more exposed to negative equity if you default after giving £500 deposit than they would be if you gave £3000.