Car loans are a great way to afford the vehicle you need without spending years and years of saving to buy it outright.
If your car loan application has been rejected, understanding why will help you make a successful application in the future.
Reasons your car loan application may get rejected
In most cases, car loan applications are successful, however, in the instance that your application has been declined, here are the main reasons behind the rejection.
Incorrect information
Your car loan application may be rejected if you missed something in your application or provided the wrong information.
All information and documents you provide with your application must be verified by the lender. It’s important to check that information matches any documentation you provide and ensure there is no incomplete or misleading information. Any errors may result in your application being rejected.
The lender may ask for additional information, so having all the necessary documents already organised can help avoid any delays with your loan.
Poor credit
Your credit score can impact your car loan, both the interest rates and your chances of approval.
Your credit score reflects your credit history. It shows how well you pay your bills and debts, and lenders use this information to assess your reliability as a borrower. A low credit score may indicate that you have not kept up with previous payments or have defaulted on a previous loan.
While many lenders will still approve a car loan for a person with a low credit score, some may reject your application if you are perceived as too risky.
Insufficient income
Taking out a car loan requires regular repayments over the term of your loan. You need evidence to show you can keep up with payments, that you will not default on the loan, such as payslips, and show you have stable employment.
Lenders will assess your income to determine whether you can repay your loan. It’s important to know your budget before applying for a car loan so you don’t apply for one you can’t afford.
Expenses can take up a significant portion of your income, so lenders will also check your expenses, including ongoing debts and bills that may impact whether you can afford your regular loan repayments.
Getting your car loan approved
If your application for a car loan is declined, it doesn’t mean you’ll never get your dream car. There are things you can do to increase the chances of your next car loan being approved.
Improve your credit score
If you have a bad credit score, improving it can help improve your chances of getting approved for a loan. Improving your credit score will also help you get a better rate on your car loan, which can potentially save you a lot of money in the long term.
Generally, you can still get a car loan if you have a bad credit rating, however, in some cases, you may be better off waiting and working on improving your credit score before applying for a car loan.
Choosing the right loan
Ensure you understand the lender’s requirements before applying for a car loan. Check credit and income requirements to determine your eligibility and if you have a good chance of being approved.
There are numerous types of car finance, so it’s worth researching to determine what option may be best suited for your circumstances. If you’re self-employed and unable to provide all the required income documentation, then you may want to consider applying for a low-doc car loan.
Thoroughly check to ensure you’ve filled in all information correctly and provided all necessary documentation.
Pay off existing debt
Finding ways to reduce your monthly expenses and pay off existing debts may help you get approval for a car loan. If possible, pay off any smaller debts before applying for a car loan. This will help free up more of your finances towards paying off your car loan.
If you already have numerous existing debts and loans that you’re paying off, then you may want to consider consolidating your debt. This involves combining numerous debts into one large debt and paying that off with one regular monthly payment. This may help you save on interest as well.
When applying for a car loan, getting advice from a finance specialist can help make the process much simpler and help reduce the likelihood of your loan being denied, so you can get the car you need sooner.