Car Finance Applicants With Clean Credit Are Declined

Tuesday, 3. November 2009

It was earlier this year when I warned that money was tight in the vehicle finance sector that would mean only the squeakiest of clean business would be written. In some instances I heard that acceptances were down to just 20% of applicants, not because the vast majority of applicants were poor credit risks but available funds meant this was the maximum number of applicants that could be accepted. Many funders have stopped using brokers with some fairly feeble reasons being offered up as to why this has been done, but there are some that feel that the lenders couldn’t write up the amount of business that was still being provided by brokers and decided to simply stick with their own sales teams. Whilst this has made it more difficult to arrange car finance there is a more sinister affect. Lets say you have been late with a couple of credit card payments, we all do it, and you apply for finance to a lender who is running short of money. Under normal circumstances you would have flown through underwriting with an immediate acceptance, however, as you are now at a lower credit score than the lender can accept so you receive a decline, as well as a search on your credit file. You therefore make a second application to another funder who is in the same boat, bear in mind that these are usually lenders who are offering the cheapest rates or APR and are therefore receiving most applications. The second funder, in a similar position declines your application also and registers a search. The third funder that you approach isn’t too bothered by your late credit card payments but now sees two previous searches, which disturbs him as they are both recent and therefore decides to err on the side of caution and decline you also. You may now find yourself, with what you consider to be clean credit, having to apply for finance as a sub prime or near prime applicant which means you will have to pay well over the odds in interest charges. To put this into perspective I received a few days ago a flyer from a company called ACF who proudly announced that they will guarantee you finance if you have been declined elsewhere, the typical APR; 44.9%. Yep you read that correctly, the APR is 44.9%. So be very careful who you apply to for finance, a few declines through no fault of your own and that’s the sort of APR you could be facing. Hands up all those who whinged on about Yes Car Credit and their ‘extortionate’ interest rates when bank base rate was many fold higher than now? Bet you wish you could be guaranteed finance by Yes at 19.9% APR as it was when the press virtually forced them out of business and removed the pressure on the sub prime market to keep rates down. By Graham Hill