Rest assured, there’s a good reason why car finance companies need to see your statements. Bank statements help lenders assess your financial situation, ensuring that you’re in a position to manage the payments.
This guide breaks down exactly why car finance companies ask for bank statements and what they’re looking for.
Proving your income
One of the primary reasons car finance companies ask for bank statements is to verify your income. Sure, you might have provided payslips or other documentation, but bank statements give lenders a more accurate and complete picture.
By looking at your regular deposits, they can ensure that you’re receiving a steady income each month. It’s not just about the amount you earn; they want to see that your income is consistent. This helps them assess whether you’ll be able to afford the monthly car payments over the long term.
If you’re self-employed or have multiple sources of income, providing bank statements becomes even more crucial. In such cases, payslips might not exist or may not tell the whole story. Lenders will use your statements to see all sources of income and how regularly they come in.
🚗 Read more about proving your income while self-employed here.
Understanding your outgoings
While your income is essential, so are your outgoings. A car finance company needs to know how much of your income is already tied up in existing bills, loans, or other financial commitments. By reviewing your bank statements, they can see exactly where your money is going each month.
It’s all part of ensuring that you can comfortably take on the new car loan. If your current outgoings are too high in relation to your income, lenders might view you as a higher risk.
This isn’t meant to be judgemental but to help ensure that you’re not overburdening yourself financially. They don’t want you to end up in a situation where keeping up with repayments becomes difficult.
Checking for stability
Another reason why car finance companies ask for bank statements is to get a sense of your financial stability. Lenders like to see that you’ve had an account in good standing for a decent period.
Frequent overdrafts or bounced direct debits can raise red flags, as they may indicate difficulty in managing your finances. By assessing your financial habits through your bank statements, they can determine if you’re likely to manage the loan responsibly.
Assessing risk and creditworthiness
Car finance companies are taking a risk by lending you money, and your bank statements help them gauge just how big that risk might be. They’ll check to see if you’ve ever missed any payments, defaulted on loans, or have other signs of financial trouble.
Lenders want to be confident that you’ll repay the loan on time, and your bank statements are one of the tools they use to assess your creditworthiness.
Even if you have a good credit score, your bank statements provide additional reassurance. It’s a way for the lender to cross-check the information in your credit report with your actual financial habits.
Avoiding fraud
Unfortunately, fraud is a concern in the finance world. By reviewing your bank statements, lenders can verify that everything checks out. They can confirm that your name matches the account holder, ensuring that the application is legitimate. If any red flags appear, such as unusual deposits or withdrawals, they can investigate further before approving the finance.
What happens if you don’t provide bank statements?
It’s understandable if you feel hesitant about handing over your financial records. However, refusing to provide bank statements could raise concerns with the car finance company. If they can’t verify your financial situation, they may be less likely to approve your application.
Lenders need to be confident that you’re in a position to manage the loan, and without this information, they might view your application as a higher risk.
How to prepare your bank statements for a car finance application
When you’re ready to submit your bank statements, it’s a good idea to review them first.
- Ensure that everything is in order and that there are no mistakes.
- Make sure any recent large deposits or withdrawals are explained, as lenders may ask about these.
- If there’s anything that looks unusual, be prepared to offer an explanation.
Most finance companies will ask for the last three months of statements, though this can vary. You can usually download these from your online banking or request them from your bank.
Closing notes
Car finance companies ask for bank statements to ensure they’re lending responsibly and to protect both themselves and you from future financial difficulties.
By reviewing your income, outgoings, and financial stability, lenders can get a clear picture of whether the loan is affordable for you. It might feel a little intrusive, but it’s a key part of securing car finance.
When you understand why it’s needed, providing your bank statements can help you get one step closer to driving away in your new car.
🚗 Related reading: What checks are done when applying for car finance?
