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Why was my car loan application rejected?

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Find out why you might’ve been rejected and how to improve your chances of approval.

If your application for a car loan was denied it’s likely you applied for more than you could afford or your credit score is not high enough. Take this as an opportunity to go through your financial history and see where it can be strengthened.

Since applications show up on your credit report as an inquiry, try and improve your chances of success before you apply again. This means understanding why lenders reject applications and knowing what you should do if it happens to you.

Why are car loans rejected, and what can I do about it?

If your loan is rejected, the first thing to do is to make sure you have completed the application correctly and that it wasn’t turned down on a technicality. Doublecheck that you:

  • Filled out every section of the application completely and accurately.
  • Provided sufficient details for your income, identity, employment and loan purpose.
  • Met or exceeded the minimum eligibility requirements.

If your loan application was completed correctly and still turned down, it was probably because the lender found red flags in one or more of the criteria. Lenders look things like credit history, employment and other debt to determine if you’re a high-risk applicant.

Your credit history

Your credit history is a strong indication of how likely you are to pay back or default on a loan. It includes details like past bankruptcies, outstanding debts, overdue accounts and previous credit inquiries. A higher credit score means a lower risk for lenders. Check your credit score before applying for a car loan to see your risk.

Current income and employment history

Your income and employment is one of the main factors lenders consider when approving your loan. If you’re not earning enough, only just started a new job or have an unstable employment situation, you’re more likely to be considered high risk.

If income is an issue, applying for a used car loan likely gives you a higher chance of success. If you’re self-employed and can’t provide all the relevant income documents, consider applying with a cosigner. These may also be an effective option for borrowers who don’t want to provide full income and employment details for an application.

Other loans or outstanding debt

If you’re paying back other loans or have lots of debt then you’re likely a higher-risk applicant. Debt consolidation might be a sensible step to consider. This involves combining several smaller debts into one large debt, simplifying payments and maybe even getting a better rate. Setting up a single monthly payment comes with its own costs, so make sure you look into these before making your final decision.

Are you a high-risk applicant?

If you’re having trouble getting a car loan because you’re a high-risk applicant, consider these two options:

  • Secured car loans: A secured car loan involves using your vehicle as collateral, which increases the risk for you and decreases the risk for lenders. You may be eligible for better rates than with an unsecured car loan.
  • Personal loans: Taking out a personal loan to purchase a car is another option. There are a variety of personal loans available, and many are easier to qualify for.

How can I avoid being rejected for a car loan?

The key to avoiding rejection is meeting the lender’s requirements before you apply. If your application is declined, ask the lender the reason. They can inform you of any weak points in your application that you might have missed, and you can take the appropriate steps to resolve these for next time.

Also, if there are any inflexible eligibility requirements, such as a minimum income or documentation that needs to be submitted, it’s important that you meet these before you apply. Otherwise, you’re almost guaranteed a rejection.

  • Check the credit requirements. Lenders will sometimes require that you have good credit, which usually means having no negative listings on your file. Check your credit report before applying and make sure it meets the lender’s criteria.
  • Check the income and employment requirements. If you’re unable to meet the specific income or employment requirements, find a different lender that isn’t as strict.
  • Pay off any outstanding loans. It’s a good idea to pay off your debts before taking on more. You’re more likely to have a loan approved if you can prove that you’re able to repay the money you borrow.

What do I do if my car loan is rejected?

If your car loan application is rejected, there are three simple steps to take before you apply again:

  1. Ask why. Lenders typically explain why your loan was declined if you ask. This can give you an idea of what to do differently next time, and whether the issue is a problem with your finances or the lenders strict requirements.
  2. Approach without applying. Before making a formal application, contact the customer service team at the lender you’re considering. Get a sense of loan requirements, ask questions and try to find out whether or not your application will succeed.
  3. Be prepared for next time. Next time, be ready. Make sure you’ve gathered all the information you need and ensure that your application is well-suited to the terms and conditions of that lender.

Ready to apply? Car loan options to consider

Rates last updated September 22nd, 2018

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Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
Name Product Product Description Minimum Credit Score Term of Loan Requirements
car.Loan.com Car Loans
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
Varies by lender
Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Auto Credit Express Car Loans
Get connected with an auto lender near you, even if you have bad credit.
Typically 3 to 6 years
Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.
LendingClub Auto Refinancing
Lower your monthly car payments and save on interest through a fast and easy online application process.
Fair or poor credit
Minimum of 2 years
Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.
MotoRefi Car Loan Refinancing
A car loan connection service for borrowers looking to refinance.
1–6 years
Must have an income of at least $2,000/month and have a vehicle with less than 100,000 miles.
myAutoloan.com Car Loans
Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.
24 to 84 months
Must have a Social Security number; make $24,000+/year; have no open bankruptcies.
LendingTree Auto Loans
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
Typically 1 to 7 years
Must be a US citizen and 18+ years old. Must have good to excellent credit.
Capital One Auto Financing
You could qualify for a car loan of up to 40000, but not all dealers accept this bank's financing.
Good to excellent credit
36 to 72 months
Valid street address; existing Capital One accounts in good standing. Car must be a 2006 model or newer with less than 120,000 miles.
Wells Fargo Auto Loans
Auto loans with high loan amounts to cover your car purchase or refinancing needs.
Good to excellent credit
1 to 6 years
Your income and assets must support your existing debt obligations and the desired loan amount.

Compare up to 4 providers

Bottom line

A loan rejection isn’t the end of the world. It gives you a chance to figure out what you’ve done wrong and improve for next time. Take some time to compare your auto loan options so you can tackle your next application with confidence.

Frequently asked questions

Elizabeth Barry

Elizabeth is an editor for finder.com.au specialising in personal finance and fintech. She enjoys reading PDSs so you don’t have to.

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