What Checks are Completed When you Take out Car Finance?

Having all the necessary documents and information available for finance companies to check is an important part of ensuring your car finance application is accepted. Typical car finance checks include credit checks and affordability assessments.

John Ellmore Published on 06 October 2020. Last updated on 20 January 2021.
What Checks are Completed When you Take out Car Finance?

The majority of Brits buy new cars through finance agreements to spread the cost over a number of months. This allows them to drive a new car off the forecourt of a dealership without buying the car outright.

If you’re reading this article you have probably identified car finance as the best way for you to buy a new car, and are already aware of everything you need to know about car finance and the different types of car finance available. But, did you know that car finance companies perform various checks to ensure you are a responsible borrower?

What checks are done for car finance?

The most common checks for car finance include a credit check and a financial assessment. You’ll also need to supply proof of identity and various other pieces of documentation.

Read on to find out what checks are completed when you take out car finance.

Proof of identity

To ensure you are who you say you are and not committing fraud, car finance companies will request the following personal information:

  • Full name (and any previous names if you’ve changed it)
  • Date of birth
  • Marriage status
  • Residential status

Proof of address

As part of your proof of identity checks, car finance companies will request details of your address history for a minimum of three years.

It’s crucial that you are as accurate as possible with detailing your address history, especially if you are a renter and you have moved around a lot. Something as seemingly insignificant as an inaccurate address detail can derail your application, even if your credit history is spotless and you pass your financial assessment with flying colours.

You will typically be asked to supply two forms of proof of address too. Utility bills — gas bills, water bills, council tax — and bank statements are usually acceptable forms of proof.

You will need to be named on the form of address that you supply and the documents will need to be from the last three months.

Bank details

You’ll need to provide your bank details, including your account number, sort code and branch address for the bank account you’ll pay your monthly repayments from.

The account will need to be registered to your name, either as the sole or joint account holder.

Employment history

Car finance providers will request your employment details and how long you have been employed by your current employer. You will need to supply your job title and current salary. The self-employed will need to provide details from their accounts, which may require 3 years of summary accounts called SA302’s.

Driver’s licence

As you are applying for car finance, it’s important to provide proof that you have the legal status to drive. Without a valid driver’s licence, most financing companies will reject an application.

If you have lost or misplaced your licence, or it is being held by the DVLA, you will need to provide another form of ID, probably your passport. The financing company will then confirm with the DVLA that you have a valid licence.

Do car finance companies check credit history?

When applying for car finance, finance companies will perform a credit check. A credit check plays an important role in determining whether you will be approved for finance and the rates you’ll be offered.

Before applying it will help if you know your credit score, as this will ensure you have a good idea of how likely you are to be accepted by different lenders. Applicants with poor credit might be best placed to apply to lenders that specialise in offering finance to drivers with bad or limited credit histories, however, finance companies will charge higher levels of interest to ease their risk for these borrowers.

There are two main types of credit check: soft and hard.

What is a soft credit check?

A soft credit check is an exploratory look at your credit history. It only accesses limited, specified information on your credit report. Soft checks do not affect your credit profile.

What is a hard credit check?

A hard credit check gives finance companies full access to your credit report.

Why is this distinction important when applied to car finance? A hard credit check leaves a permanent trace on your credit file. You should aim to limit the number of credit requests you make over a short time period — try to leave at least 12 weeks between hard credit checks — otherwise lenders may become worried about your financial responsibility and consider you a risky borrower.

When are car finance soft credit checks carried out?

Typically soft credit checks are made initially to ensure that you are a responsible borrower. Finance companies will be particularly keen to see how you manage any loan repayments, and what your debt history looks like. Unlike a hard credit check this won’t leave a mark on your credit report. A soft check will enable you to be approved for an agreement in principle.

This simply means that a lender will be willing to lend to you providing you meet all their lending criteria, including financial affordability checks.

When are car finance hard credit checks carried out?

A hard credit check will be performed after you have an agreement in principle with a credit company, when you’ve chosen the deal you would like and have agreed to go ahead with it. Now, a visible mark will be left on your credit file, so be sure that the deal you’ve agreed to is suitable.

If not, you may need to continue shopping around for a better deal. Before applying to any credit company, ensure you are aware if and when they will perform a hard credit check. Credit companies should inform you at which stage in the application process that they carry out hard credit checks.

How long does a credit check take for car finance?

A check will be run on your credit report as part of the finance company reviewing your application. This process usually takes between one and two days.

Will I be approved for car finance?

Each lender and car finance product is different. Being rejected by one provider does not mean you will be rejected by all car finance providers. To improve your chances of approval, ensure you know the lending criteria of the provider, research your credit score and understand how it could affect your eligibility for a lender’s individual products before applying to them.

It’s also important that you provide up-to-date and correct information throughout your application, including proof of identity, address, employment and financial details.

If you know you have poor credit it can be worthwhile to rebuild your credit history before applying to car finance deals. Yes, deals are available for borrowers with poor credit, however lenders will attempt to mitigate their risks with higher interest rates.

Always be truthful in your submissions, any falsehoods in your application could lead to you being blacklisted by car finance companies.

Can I get car finance without a credit check?

Lenders that offer car finance products will require you get a credit check before approving you for finance.

How long does it take to get car finance?

In an ideal scenario borrowers can be approved and have the funds transferred into their account on the same day. However, don’t assume that you’ll be able to arrange a deal from the car showroom and drive off a few hours later.

Typically it will take one to two business days for a car finance company to check your documents and financial information before finally coming to a decision on your application.

Compare car finance

Compare car finance deals to help you find the best deal for your financial circumstances.

If you would like to research more information on your options before comparing deals, visit our motoring hub where you will find many useful articles to help explain the complexities of car finance.

About the author:

John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more

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