Why is my daughter unable to get a car loan?

ginsoakedgirl

RPW, I did think the same thing when she told me, a tenner a month. The guy put it across to her that it would look good on her as it was a regular payment to the bank - she has kept a check on her credit file and uses the travel/phone insurance that come with the account though so she seems happy to keep it.

Tixy

Would it be worth making an application for a cc do you think?

A credit card isn't going to be a very good way for her to buy a car even if she can get one.

A card designed for people without a credit history would probably have given her a £500 limit with an APR of around 40% or more.

Even if she could get a card from her bank they'd be unlikely to start her with a limit as big as £5k and even if the APR is only 20% then she still be paying a lot over the years. Plus most car dealers charge a fee for paying by credit card (often around 2%).

Has she considered looking for car finance (providing she is definitely going to want to keep the car for the length of the loan and be able to afford it).

How much does she have in savings? could she use that to buy a vehicle and they 'repay' her savings account what she would have repaid on a loan?

sulphate

Assuming she is on the electoral roll, my guess would be a combination of lack of credit history and amount she wishes to borrow is going against her.

Phone bill and direct debits are probably very small amounts compared to what she wishes to take out a loan for. And due to her age she doesn't have a long credit history.

£5k is a lot to borrow for someone earning that amount. If she hasn't ever had a cc before even then I'm not surprised she is being declined for one with a high limit. To put this into perspective, I earn in the region of £22-26k and I was given a limit of £4,600 on the last credit card I applied for. When I was earning much less the highest limit I could get was £1k and my credit history is all but spotless.

I would suggest that if she wants to have more of a credit history she takes out a credit card with a low limit, pay it off in full each month before applying for another card. In the meantime she could save a bit more.

ginsoakedgirl

I totally agree about not using that sort of credit card to buy a car, I was thinking of the application as more of a way to build her credit rating in order to apply for a loan later on. We haven't investigated car finance at all actually. She would definitely want the car for the term of the loan and wouldn't take it on if the repayments were too much to manage. She hasn't been saving long unfortunately and her current car is on its last legs, so she is hoping to get something as soon as she can. She is so frustrated, especially as she has friends who have been accepted for credit and she is so careful with her money.

BillJones

As above, if she's saving £700 per month, does she really need a loan?

Or is it the case that she's actually not got the balance of income and outgoings that the figures would suggest?

DebtFree14_2

Firstly a CC is not and should not be used for a car purchase!. She will be in debt the rest of her life chasing to pay it off. She will also not get a limit of 5K on her first CC with that income.

If she is on the electoral roll then make sure she uses a landline number and her email address combines both her first name and surname i.e jane_smith@hotmail.co.uk

Her own bank are the ones more likely to give her a loan and CC because they can see how she uses her account and already have their own score for her. I am actually surprised if she has a packaged bank account and a surplus of £700 each month that she can not get one. You say she pays £100 a month into savings? How much does she have. Her bank score would be high with savings in the bank

Are you sure she is telling you an accurate account of her finances??

PeacefulWaters

What term of loan did she apply for?

Five years for a car may be the reason for a decline.

ginsoakedgirl

Thanks everyone so much for your speedy and extremely helpful responses today. They have definitely provided lots of food for thought and some options for my daughter to look into. I will suggest that she checks the details recorded for her on the electoral roll. As far as I am aware she has only been saving for 5 or 6 months, and she has been honest with me about her finances, although she does not accrue the surplus income each month and does spend a good portion of her income each month on clothes, nights out, car running costs etc. She always has money left by the time pay day comes around again however - although I don't know how much!

ginsoakedgirl

She applied for a term of 4 years PeacefulWaters - thanks for that, I had no idea!

shop-to-drop

Could she wait six months or even four. If she saved £500 a month she could half the loan she'd need and more likely be accepted. She could then take the loan over 3 years and it be paid off before she needed to trade in again.