Why budgeting in cash can hurt your chances at car finance
Budgeting with cash
It’s something we learnt from a young age. We’ve all done it. You simply pull out cash from the ATM each week and keep aside so you can limit and track your spending more closely. Seems like a good idea, right? We hate to say it, but even though this seems like a good idea, it could actually prevent you from being approved for car finance! This is due to recent changes to the Consumer lending environment. Simply put, this advice is not only outdated, but may be hurting your chances at applying for finance.
Even if you are legitimately be taking out cash to save, lenders cannot physically track these savings and therefore, may consider the full amount in your monthly expenditure, which affects your borrowing capacity. We recommend you to stop withdrawing cash as much as possible!
We at Unicorn Auto want to help our customers get approval for Car Finance! Here are some tips you should carefully follow to ensure you have the best chance possible to be approved!
5 tips and solutions to prepare for a car finance application.
1. Minimise ATM cash withdrawals and excessive gambling:
As mentioned above, stop withdrawing cash for savings straight away. Lenders can now easily calculate the percentage of income being withdrawn at ATMs and lenders often view cash withdrawals as gambling, even if you are just putting it aside as savings!
How else can you put money aside to save?
Rather than withdrawing cash to budget or save, open a separate bank account and limit access, e.g. Do not activate a Debit card for the account. Online banking and immediate transfers between accounts makes it simple to create multiple accounts for a variety of uses. As an example, have a ‘rainy day fund’ for savings or an ‘everyday’ account for general living expenses. This shows lenders your capacity to manage your everyday expenses, savings and existing commitments, whilst also accounting for all income in your bank accounts.
2. Prevent dishonours on bank statements and financial commitments
When applying for additional finance, it is important to show good repayment history with lenders on existing financial commitments. Consistent dishonours on your bank statements shows lenders an inability to manage your funds effectively.
But what if dishonours are out of your control?
Sometimes these dishonours are out of your control and most lenders are aware of this; so, if you find yourself in a situation where you could miss a payment, it is always best to contact the lender prior to the drawing date and attempt to organise a resolution. Credit assessors would prefer to see clients organise ‘make up’ payments rather than dishonour and avoid the problem, burying their heads in the sand!
3. Avoid using payday loans for everyday expenses
Payday loans are a quick and easy solution for finance; however, they end up hurting borrowers with high interest and large ongoing repayments. Payday loans may be a viable option for unexpected emergencies or unforeseen financial situations, but they will have an adverse effect on your credit rating and chances at finance for the future.
But what if you don’t have enough money available for your commitments?
If you are struggling financially with your ongoing commitments, look into the possibility of obtaining a consolidation loan to manage your repayments and get on top of your financial situation.
Lenders will look unfavourably at the use of payday loans to facilitate general living expenses and could mean the difference between declining and approving your application.
4. Avoid high volume of bank transfers
Some borrowers prefer to siphon funds from different accounts on a daily basis for existing repayments and general living expenses. Not only does this behaviour run the risk of dishonouring on financial commitments, but also makes it difficult for lenders to track your bank statement activity. The easier it is for lenders to evaluate the inflow and outflow of income and expenses, the faster they can reach an assessment decision.
How should you manage your bank accounts?
Try and keep your bank statement activity as clear and concise as possible so lenders can reach a decision without any degree of ambiguity. Simply put, try keep your money in the one account as much as possible.
5. If you are uncertain about your chances of finance, ask for advice!
If you have any questions about your borrowing capacity or how your application might look to a potential lender, it is always best to consult a broker!
Our team of Brokers at Unicorn Auto will help to find you a potential lender that will assist with your funding requirements or give you advice that will improve your financial application for the future. We will even give you free financial coaching with regular reminders emailed to you to help keep you on track!