Obtaining a car loan refusal can be difficult – especially since for many drivers a loan is the only practical way to get behind the wheel. If this’s you, it’s time to dump her and move on.
Why was my car loan denied?
There are many factors that affect your chances of getting a car loan.
- Poor credit rating. Most lenders have a minimum credit score as part of their eligibility criteria to get a loan. If your credit score is lower than this requirement, you will be denied immediately. A score of 620 or lower is less than ideal when it comes to getting a loan.
- No credit history. If you do not have accumulated credit, lenders will not be able to measure your ability to make future auto loan payments and may use it as a reason to refuse your application.
- Application errors. You may be denied a loan due to simple errors in the application itself. If you miss a section or note information incorrectly, lenders may reject your application.
- Debt. If you have a lot of debt raised by other loans or credit cards, your DTI – or debt to income ratio – will be higher. A DTI ratio of 50 percent or higher is considered a red flag.
What to do if you are denied a car loan
Just because you have been denied a car loan does not mean that getting one in the future is out of the question. Take a few steps before re-applying to increase your chances of leaving the lot on your new route.
Contact the lender
The first step after refusing a car loan is to contact the lender. Find out the specific reason why your application was rejected. If it was something as simple as an application error, you can easily make adjustments and reapply. It is important that you request this information within 60 days of your application, otherwise you will not be covered by the Equal Credit Opportunity Act.
Improve your credit score
As mentioned earlier, your credit score serves as a vital measure for lenders when deciding whether to accept or reject your application. Take time to improve your credit score by checking your credit report, paying on time and reducing your credit usage before re-applying for a car loan after being denied.
Look for poor creditors
If the reason for the rejection of your application was due to a bad credit score, a poor credit lender can be a way to get you behind the wheel sooner rather than later. These lenders trade specifically for drivers with low credit scores. But it is important to compare options because these lenders tend to have much higher interest rates that could cost you thousands in the long run.
Minimize your debt
Reducing your debt is the key to attracting future lenders. First of all, it is important to avoid accumulating any future debt through the process of trying to reduce it. It is advisable to take the time to check your budget and try to deduct any unnecessary expenses before re-applying. Debt consolidation is also a great way to minimize your debt.
Choices do not stop at your ability to quickly improve your credit and reduce your debt – although both can certainly help.
“Buy here pay here” merchants
The BHPH dealership is not perfect, but it can be a good choice if you have a low credit score and are desperately looking for a vehicle. In this scenario, the dealer sells and finances the vehicles in their lot. Credit approval standards tend to be lower and the process is much faster than traditional lending. But it is important to keep in mind that interest rates are very high and that there are fewer vehicles available.
Co-signed car loan
A co-signed car loan on the other hand is when you – the borrower – still bear full responsibility for the vehicle payments, unless you can not. Both your credit history and your co-signer’s credit history will be taken into account during the application process, which can lead to approval and more. favorable interest rates and terms.
Common car loans
A joint car loan is when you and another person — usually a life partner or spouse — fully share the car loan. This can lead to a lower interest rate as well as the possibility of getting a bigger loan due to the extra income.
The bottom line
Do not be discouraged after an initial refusal by an auto lender, but rather go back and try to find the reason for the refusal. As with anything in finance, readiness is the key. The next time you apply, follow the steps above to make sure your application is perfect in the eyes of the potential lender.