How to Improve Your Chances of Getting Finance Approval

How to Improve Your Chances of Getting Finance Approval

Applying for finance can be a daunting process, especially if you're unsure whether your application will be approved. Whether you're seeking a personal loan, mortgage, or car finance, lenders assess your application based on various factors. Understanding these factors and taking proactive steps to improve your financial profile can significantly increase your chances of approval.

In this article, we’ll explore actionable steps you can take to improve your chances of getting finance approval, while also introducing Kandoo, a UK-based retail finance broker that can help you find the right lender for your needs.

1. Understand Your Credit Score

Your credit score is one of the most important factors lenders consider when reviewing your application. It’s essentially a snapshot of your financial behaviour, providing insights into how likely you are to repay the money you borrow. In the UK, credit scores are usually provided by agencies like Experian, Equifax, and TransUnion.

How to Check Your Credit Score

Before applying for any type of finance, it’s a good idea to check your credit score. You can do this through free services offered by the credit reference agencies mentioned above, or through various online platforms. Checking your credit score doesn’t affect your rating, and it’s an essential first step in understanding your financial standing.

Ways to Improve Your Credit Score

If your credit score isn’t as high as you’d like, don’t worry—there are several steps you can take to improve it:

• Pay bills on time: Lenders want to see that you’re responsible with payments. Ensure that all your bills, including utilities and credit card payments, are paid on time.
• Reduce existing debt: If you already have outstanding loans or credit card balances, paying them down can boost your score. Lenders prefer applicants with lower levels of existing debt.
• Register on the electoral roll: Being on the electoral roll helps lenders verify your identity, which can positively impact your credit score.
• Avoid multiple credit applications: Each time you apply for credit, a hard inquiry is recorded on your credit report. Too many hard inquiries in a short period can negatively affect your score, as it may suggest financial instability.

If you're unsure about your creditworthiness, Kandoo can help you navigate the world of retail finance by matching you with lenders that are most likely to approve your application based on your credit profile.

2. Review Your Credit Report for Errors

Your credit report contains detailed information about your borrowing history, and sometimes, it can include errors. These errors could negatively impact your credit score, reducing your chances of getting finance approval.

Common Errors to Look For:

• Incorrect personal details: Ensure that your name, address, and date of birth are accurate.
• Incorrect account information: Check that all the accounts listed under your name are correct, and that there are no accounts you don’t recognise.
• Late payments or defaults: If you spot any late payments or defaults that you know you made on time, dispute them with the credit reference agency.
• Duplicate entries: Sometimes, the same debt or account can appear more than once on your report, which can make it look like you owe more than you actually do.

Correcting these errors can give your credit score an immediate boost, increasing your chances of finance approval. If you’re unsure how to correct these mistakes, Kandoo can offer guidance to ensure your credit report accurately reflects your financial history.

3. Show Proof of Stable Income

Lenders want to be sure that you have a stable income to cover your loan repayments. Whether you’re employed, self-employed, or receiving benefits, having a steady source of income is crucial to getting finance approval.

How to Demonstrate Stable Income:

• Provide recent payslips: If you're employed, your lender will likely ask for recent payslips (typically from the last three months) to verify your income.
• Submit tax returns: If you’re self-employed, you may need to provide tax returns or bank statements to prove your earnings.
• Show consistent work history: Lenders often look for a stable work history. If you’ve recently switched jobs, be prepared to explain the transition, especially if there was a gap in your employment.

If you're struggling to find lenders who are willing to work with your specific financial situation, Kandoo can help. As a finance broker, Kandoo works with a wide range of lenders who cater to individuals with different income levels and employment statuses.

4. Reduce Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is the percentage of your monthly income that goes toward paying off debts. Lenders use this figure to assess how much of your income is already committed to debt repayments, and whether you can afford to take on additional borrowing.

How to Calculate Your DTI Ratio:

1. Add up all your monthly debt payments (including credit cards, loans, and mortgages).
2. Divide this total by your gross monthly income (your income before taxes).
3. Multiply the result by 100 to get your DTI ratio as a percentage.

For example, if your total monthly debt payments are £500 and your gross monthly income is £2,000, your DTI ratio would be 25%. A lower DTI ratio (typically below 35%) is considered more favourable by lenders, as it indicates that you have sufficient disposable income to manage additional debt.

How to Reduce Your DTI Ratio:

• Pay off existing debts: The most straightforward way to reduce your DTI ratio is to pay off as much existing debt as possible before applying for new finance.
• Increase your income: If possible, consider ways to boost your income, such as taking on a part-time job or freelancing.
• Avoid new debt: Hold off on applying for additional credit until after your loan has been approved.

Kandoo’s network of lenders includes options for individuals with varying DTI ratios. By working with Kandoo, you can be matched with lenders who are more likely to approve your application based on your current financial situation.

5. Save for a Larger Deposit

If you’re applying for secured finance, such as a mortgage or car loan, offering a larger deposit can improve your chances of approval. A higher deposit reduces the amount you need to borrow, making you a lower-risk applicant in the eyes of lenders.

Benefits of a Larger Deposit:

• Lower loan-to-value (LTV) ratio: A lower LTV ratio (the amount you borrow compared to the value of the asset) is more attractive to lenders.
• Better interest rates: A larger deposit can result in more favourable interest rates, saving you money over the course of the loan.
• Increased likelihood of approval: Offering a larger deposit shows lenders that you’re financially responsible and committed to the purchase, increasing your chances of approval.

Even if you don’t have a large deposit saved, Kandoo can help you explore options with lenders who offer competitive terms based on your specific circumstances.

6. Consider a Guarantor Loan

If you have a low credit score or limited credit history, you may want to consider applying for a guarantor loan. A guarantor loan involves a third party (usually a family member or close friend) who agrees to cover your repayments if you’re unable to do so. This reduces the risk for the lender, making it easier for you to get finance approval.

Benefits of a Guarantor Loan:

• Easier approval: With a guarantor backing your loan, lenders may be more willing to approve your application, even if your credit score isn’t ideal.
• Opportunity to build credit: Successfully repaying a guarantor loan can help you build or improve your credit score, making it easier to secure finance in the future.

Kandoo works with lenders who offer guarantor loans, making it easier for individuals with less-than-perfect credit to access the finance they need.

7. Limit Your Applications

As mentioned earlier, making multiple finance applications within a short period can negatively impact your credit score. Each time you apply for credit, the lender conducts a hard inquiry, which is recorded on your credit report. Too many inquiries can make you appear desperate for credit, which is a red flag for lenders.

How to Avoid Multiple Applications:

• Use eligibility checkers: Many lenders offer "soft search" eligibility checkers that allow you to see if you're likely to be approved without affecting your credit score.
• Work with a broker: Instead of applying to multiple lenders individually, consider working with a broker like Kandoo. Kandoo can assess your financial profile and match you with lenders that are more likely to approve your application, reducing the need for multiple hard inquiries.

8. Seek Professional Advice

If you’re unsure about your financial situation or how to improve your chances of getting finance approval, seeking professional advice can be invaluable. Financial advisers, brokers, and credit counsellors can provide tailored guidance based on your specific circumstances.

How Kandoo Can Help:

Kandoo is a UK-based retail finance broker that works with a wide range of lenders to help individuals secure the finance they need. Whether you’re looking for a personal loan, car finance, or another type of credit, Kandoo can match you with lenders who are most likely to approve your application based on your financial profile.

By using Kandoo’s services, you can save time and avoid the frustration of multiple rejections, as the platform does the hard work of finding suitable lenders for you.

Conclusion

Improving your chances of getting finance approval requires a combination of good financial habits, understanding your credit profile, and taking proactive steps to reduce risk in the eyes of lenders. By checking your credit score, reducing your debt, saving for a larger deposit, and working with a trusted broker like Kandoo, you can significantly improve your chances of securing the finance you need.

Remember, patience and preparation are key. By taking the time to strengthen your financial profile, you’ll not only increase your chances of approval but also secure better terms and interest rates in the process.