Why was my car loan application rejected?

Common reasons why loans get declined and how to avoid them.

If your application for a car loan was denied, then it’s likely you applied for more than the lender felt you could afford or your credit score is not high enough. But those aren’t the only reasons car loans get rejected.

Crucially, you shouldn’t just move on to the next lender and apply there because multiple applications for credit in a short space of time can damage your credit score and put prospective lenders off. Take a moment to consider your next move.

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Why was my car loan denied?

You can typically find out why your car loan application was denied by contacting the lender. If you applied online, you can often find out simply by logging in to your account. Otherwise, reach out to customer service over the phone to find out how to get this information.

Common reasons lenders deny car loan applications

There are several reasons why your car loan application might have been rejected. Let’s take a look at some of the most common ones:

  • Affordability. Lenders must only lend responsibly. That means looking at your regular income and outgoings to see if there’s enough left over to comfortably cover repayments on the loan you’ve requested.
  • Credit history. Your credit record is used as an indication of how likely you are to pay back or default on a loan. It includes details like past CCJs, missed payments and previous credit searches. A higher credit score means a lower risk for lenders. You don’t have a single definitive credit score – different credit reference agencies (CRAs) calculate your score in different ways, but if you have a good credit score with one, you’ll almost certainly have a good credit score with others. It’s usually free and fairly straightforward to check your score.
  • Eligibility. Each lender has its own set of criteria that all borrowers must meet. You’ll invariably need to be over 18 and a UK resident, but there may also be an upper age limit or requirements on the vehicle that you wish to purchase. Make sure to check a lender’s eligibility criteria before you apply.
  • Employment. If you only just started a new job, if you’re self-employed or have an unstable employment situation, some lenders may consider you a higher risk.
  • Simple mistakes. You might be surprised how many car loan applications are rejected on a technicality. It’s possible you could have made a simple mistake on the form.

How can I avoid getting denied again?

  • Consider a broker or matching service. A good broker/matching service will be able to run a “soft search” of your credit file (that’s a search that won’t affect your credit score or be visible to lenders) and check your likelihood of acceptance with a wide range of lenders. One of the main advantages to this system is you’ll only need to enter your details once to check a selection of lenders.
  • Work out what you can afford to pay. If you do your sums and work out what would be a comfortable loan repayment for you each month, then there’s a good chance a lender will reach the same conclusion. You can keep repayments lower by opting for a longer loan, but be aware this usually pushes up the overall cost.
  • Before you hit “apply” check the eligibility criteria. If you’re unable to meet the specific age, income, vehicle or employment requirements, find a different lender that isn’t as strict.
  • Reduce existing debt. It’s a good idea to pay off as much of your existing debts as you can before taking on any more. You’re more likely to have a loan approved if you can prove you’re able to repay the money you borrow.
  • Get to know your credit score. There are numerous services that can offer you visibility of your credit score for free. To access your full report, you’ll normally have to pay a little each month. Once you know your score, you can look at ways of improving it.
  • Consider a guarantor loan. If you have bad credit, you could apply with a friend or family member who promises to step in if you fail to meet your repayment schedule.

The bottom line

A loan rejection isn’t the end of the world. It gives you a chance to figure out what’s wrong and improve your chances for next time. Take some time to weigh up your loan options and consider a matching service so you can tackle your next application with confidence.

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

  • 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 lender’s strict requirements.
  • Get prepared for next time. There may be measures you can take to boost your chances, like reducing debt, applying for a more affordable loan or working on your credit score.
  • Consider a broker/matching service. Enter your details just once, to get a good idea of the lenders that would be able to offer you a loan, all without hurting your credit score.

And if you’re having trouble getting a car loan because you’re a particularly high-risk applicant, you could consider a guarantor loan.

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