By doing this, they would be able to drive a brand new vehicle without paying off for it completely at once.
Now, if you’re here and reading this post, then you’ve probably come to the decision that car financing is the best way for you to get a new vehicle.
However, you’re not sure about the different types of car financing available and how it works.
Additionally, car financing companies also do their own research on customers to make sure that they are good borrowers first before approving financing.
This research includes financial assessments and credit checks. It also includes different documentation, proof of your identity, and much more.
Be sure to continue reading if you want to learn more about the different checks that are done as well as the required documentation.
Proof of your identity
This is important because they need to ensure that you are the person you’re claiming to be and you’re not fraudulent. The majority of companies will ask you to provide information such as:
– Name: This includes any names you’ve used previously
– When you were born
– Marital status
– Residential status
– You can use your driver’s license to prove your identity, however, there are some institutions that will need more documentation as proof
– Address and proof of it
This is important and you’ll need to show proof of your address along with details of your address history for 3 years or more.
You need to provide as many details as you can about your personal address history. This is particularly important if you rent and you move frequently.
Unfortunately, if there are incorrect details with respect to your address, this can cause your application to get derailed. This can happen even if your credit is great and you do well in the financial assessment.
Additionally, you’ll have to provide two proofs of address such as your utility bills, bank statements, council tax, water bill etc.
However, these documents showing your proof of address also need to be in your name and must be dated within the last 3 months.
Next, the financiers need to ensure that you can pay the repayment and they’ll have to look at your overall income.
In most cases, they’d be able to access this in your employment information. However, they will likely still want to look at your bank statements and payslips so that they can determine exactly how much money you have coming in and how much money you spend.
In the event that you don’t have a set income or are self-employed, then you’ll have to show more evidence that you are capable of making the payments every month.
History of employment
Next, they will also ask for the details of your employment and the length of time that you’ve been working there. You will also be asked to state your salary and the title of your job.
If you’re self-employed, you’ll need to show details from your account as well as a 3-year summary. This is known as a SA302.
Once you’re trying to get financed to purchase a vehicle, you’ll need to show that you can legally drive by providing your driver’s license. This license must be valid and if it isn’t your application will very likely be rejected.
In the event that you don’t have your license due to it being misplaced, lost or if the DVLA has it then you’ll have to show another type of identification such as your passport. The financial organization will also liaise with the DVLA to ensure that your license is valid.
If your license is provisional, then it will be quite challenging for you to obtain car financing. However, even though it is very challenging, you can still possibly get financed.
The financial institutions that do accept the provisional license will typically place particular restrictions on the cost of the vehicle that you can get financed.
Checks on credit
Next, the car finance company will also do a credit check. This is very important and will determine if you get approved or not as well as your particular rates.
So, before you actually apply for financing, it is a good idea to find out your credit score. This will let you know your chances of acceptance.
If you have a poor credit score then it may be best that you use lenders who particularly lend to people with low scores or don’t have much credit history. Keep in mind that these companies will typically have higher interest rates to lower their risk.
There are companies that offer car finance with no credit check.
Soft & Hard credit checks
Soft credit checks are a quick and exploratory view of a person’s history. This means that it only looks at particular parts of the credit report and they don’t have any impact on the individual’s profile.
Hard credit checks are a full view of a person’s credit report and it can be seen on the credit file. As a result, it is best to limit how many credit requests are made within short periods.
For example, be sure to have at least 12 weeks in between any hard credit checks. If there is more than one credit check within this period, then financial lenders will view this as worrying and will label the person as being a risky potential borrower.