7 Tips to Prep Your Bank Statements for Your Bad Credit Loan

Preparing your bank statements is a key step when applying for bad credit car loans. The process can feel overwhelming and confusing, especially if you have faced rejection in the past without a reason as to why.

To get you started, we’ve outlined 7 practical ways to make sure your bank statements are approval ready, so you can move one step closer to securing the car you need.

1. The Role of Income:

Showing consistent income on your bank statements helps when applying for credit challenged auto loans. Acceptable forms of income can include regular wages from employment or self-employment. Having a clear, ongoing pattern of income demonstrates you have a reliable cash flow and gives your lender more confidence in your ability to repay your loan on time. The more stable and predictable your income, the stronger your application becomes.

2. Responsible Spending Habits:

Lenders look over your expenses to make sure you are living within your means. When your expenses exceed your income, lenders question your ability to handle a loan. Most lenders will accept 3 months of bank statements, so it is good practice to start cleaning up your finances before applying.

Two common spending patterns that can raise concerns are the following:

• Gambling Transactions: Consistent betting activities whether small or large are seen as risky behaviour. Gambling is a concern for lenders because it suggests impulsive decision-making and unpredictable financial habits.
• ATM Withdrawals: Large or regular cash withdrawals raise questions about undisclosed spending that might not appear in bank statements. Without clear purpose, these withdrawals suggest hidden expenses

Lenders will allow a certain percentage for gambling and ATM withdrawals, but you want to make sure you are not showing excessive amounts. Lenders don’t expect perfection; they want to see you prioritising your main expenses and limiting those risky transactions. This will help strengthen your application and show lenders you have the discipline to meet your financial obligation to the loan you are wanting.

3. Impact of Buy Now, Pay Later Services:

Using Buy Now, Pay Later (BNPL) services such as Afterpay, Zip Pay, or Klarna can affect your chances of being approved for bad credit car loans. The concerns BNPL services raise for lenders are:

• Using on Everyday Purchases: Frequently using BNPL suggests that you may be relying on credit to manage expenses, rather than using your available funds. This can raise a red flag about poor cash flow management.
• Increasing Liabilities: Having multiple BNPL transactions will take away affordability from your desired loan amount as lenders must factor theses into their assessment.
• May Affect Your Credit File: Some BNPL providers report to credit bureaus. If you miss payments or have multiple BNPL accounts open, it could negatively impact your credit score, making loan approval even more difficult.

To help improve your chances of approval, it’s good to reduce or avoid BNPL in the months leading up to your application.

4. Healthy Account Balance:

Having a good account balance is a sign of being responsible and good with your money. When applying for bad credit car loans, a positive balance suggests that you manage your income and expenses wisely, live within your means, and are less likely to default on future loan payments.

On the other hand, if your bank statements show low or negative balances frequently, it may raise red flags for lenders. This pattern can mean you have poor financial habits or can’t manage cash flow well, which may lead lenders to view you as a higher-risk borrower. As a result, your chances of loan approval could be significantly reduced.

5. Make Saving a Habit:

Having regular savings, is generally viewed as a strong indicator of financial responsibility. Saving consistently can positively influence your loan application in a few keyways:

• Financial Discipline: Shows lenders you can manage your income wisely and can prioritise your financial goals over unnecessary spending.
• Ability to Manage Repayments: Suggest you have a surplus of income after covering your essential expenses and can handle loan repayments.
• Builds Lender Confidence: Provides a financial buffer, reassuring lenders that you have the means to deal with unexpected costs without jeopardising your loan repayments.

By making regular savings a habit, you not only improve your financial wellbeing, but also improve your chances of securing a car loan. There are many ways to save, and MoneySmart has an excellent article that offers valuable insights called ‘Simple Ways to Save Money’.

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6.Use of Payday Loans & Pay Advance:

Many people don’t realise the negative effects of using payday loans and pay advances. To better understand this let’s break down what exactly payday loans and pay advances are:

• Payday Loans: Short term loan that lets you borrow up to $2,000. Some companies who do this are CashNGo, Nimble, and Cash Converters.
• Pay Advance: Allows individuals to access a portion of their earned wage before their scheduled payday. Some companies who do this is Wagetap, Wagepay, Beforepay, and MyPayNow.

Frequent use of payday loans suggest you may be struggling to cover expenses with your regular income. Lenders see this as a warning you are using short-term loans to get by. We understand how easy it is to get stuck in the payday cycle, especially with how easy it is to access them. Over time, reducing your reliance on them can improve your financial stability and make it easier to get approved.

A common misconception about using pay advances is that they help improve your credit score, this is not true. Lender’s view pay advances as a potential sign of financial hardship as you are accessing your wage before your payday. Equifax provides a great breakdown on how to properly ‘Improve Your Credit Score’ without accessing pay advances.

7. Returned Direct Debit & Dishonours:

Having consistent returned direct debts and dishonours raise concerns for lenders. This indicates trouble for you managing your money. Best practice is to clear up any returned direct debts or dishonours in your bank statements to improve your chances of approval.

Lenders understand that occasional missed payments can happen, but frequent missed repayments raise concerns about your ability to manage future loan commitments. Below are the key reasons why this is a concern for lenders:

• Poor Money Management: Frequent returned direct debits or bounced payments on your existing loans indicate a lack of financial stability and control.
• Lack of Reliability: Dishonoured payments indicate that there were insufficient funds in your account to cover your scheduled repayments. As a result, it can raise doubts about your ability to meet the repayments of a new loan.
• Financial Instability: If your bank statements show that you’re frequently running low on funds, lenders may question whether you’ll be able to keep up with regular loan repayments, especially if unexpected costs arise.

Ready to take the next step?

At Ume Loans we firmly believe in second chances and we’re here to help you navigate the finance process with confidence.

Don’t let the stress of bank statements stand in your way. Get back on the road with confidence by applying now for our bad credit car finance!