If you've ever applied for any type of finance, you would have likely heard of the term 'soft search' that is performed on your finance record to determine whether you are eligible to borrow.
With car finance, lenders need to be sure that you can afford to repay the loan you borrow, and a soft search helps to get you pre-approval, meaning you'll know that you'll be able to take out some sort of finance.
There's nothing that you have to do; when you're browsing car finance, a lender will automatically perform a soft search, which helps speed up the overall process of taking out finance.
Do you have a car on finance and would like to reduce your monthly repayments? Sign up with Car Credible today; we could help you save money on your deal.
What's important for you to know is that a soft search won't appear on your credit file or impact your credit score. If you use credit apps, you may get notified that a soft search has been performed, but you don't need to do anything about it.
On the other hand, a hard search will impact your credit score, but this is only performed when you physically apply to take out finance, with the expectation that a finance deal will be agreed upon.
What is a soft credit check?
A soft credit check is carried out by potential lenders to understand your eligibility for a particular type of loan. It helps you to get pre-approval before you officially apply, and this helps to smooth the application process for you.
Despite lenders viewing your credit history, there will be no trace left on your finance record, meaning it won't affect your credit score or future borrowing power if you wish to apply for other loans.
Applying for car finance with Car Credible
Applying for car finance with Car Credible couldn't be more simple. All we need from you are some of your personal and financial details, which help lenders understand your eligibility.
Address and employment history are two of the main pieces of information that we need, as this helps identify your income, ability to make repayments and overall stability.
Whether you're in an existing finance deal and want to part-exchange or refinance, or you've never had finance before and want to take out a brand new loan, we can help you find the perfect deal to suit your needs and budget.
H2 How to improve your chance of being approved?
While it's not possible to completely control how a lender perceives your affordability and borrowing power, there are several things that you can do to strengthen your chances of being approved for car finance.
- Ensure you have never missed a payment for any financial loan you have ever taken out. That includes mobile phone contracts and financial buy now, pay later services, such as Klarna.
- Try to spend no more than 25% of your overall credit limit per month. If you exceed this every now and then, it shouldn't impact you too much, but if you're regularly using more of your credit utilisation, it could show you aren't in control of your payments and spending.
- Try not to apply for too many finance loans in quick succession. Loan applications will result in a hard search on your credit profile, and any rejections could indicate that your finances are unstable, thus putting off potential suitors.
- Get yourself on the electoral roll, as this will confirm your identity and prove that you have a fixed abode.
The finance options available to you
There are two main finance options available to you.
Personal Contract Purchase (PCP)
Personal Contract Purchase (PCP) is the most popular way to take out a car finance agreement in the UK. It is ideal for those that want to change their car regularly and make lower monthly repayments.
At the end of the agreement, you can choose to make the final balloon payment to own the car outright or hand the car back to the finance company with no further liability, provided you have taken care of the car and have not exceeded the mileage allowance.
Hire Purchase (HP)
Hire Purchase (HP) is also popular, and is slightly more straightforward than PCP. You don't own the car until you have made every monthly payment as per your contract. You are essentially paying in agreed monthly instalments until the total amount payable is repaid.