Denied the auto loan? Here’s everything you need to know Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial choices by providing you with interactive financial calculators and tools that provide objective and original content. This allows you to conduct research and compare data for no cost and help you make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies that compensate us. This compensation may impact how and when products are featured on the site, such as, for example, the sequence in which they appear in the listing categories, except where prohibited by law. Our mortgage home equity, mortgage and other home loan products. This compensation, however, does not influence the content we publish or the reviews appear on this website. We do not include the universe of companies or financial deals that could be open to you. yourstockbank/Getty Images
4 min read Published October 12, 2022
Written by Kellye Guinan. Written Personal and Business Finance contributor Kellye Guinan is an editor and writer freelance with more than five years of experience in personal finance. She is also an employee full-time at her local library where she helps her community access information about financial literacy, in addition to other topics. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to manage their finances through providing concise, well-studied information that breaks down complicated subjects into bite-sized pieces. The Bankrate guarantee
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We receive compensation for the promotion of sponsored goods and, services, or through you clicking specific links on our website. This compensation could impact how, where and when products are displayed within the categories of listing, except where prohibited by law. This is the case for our mortgage, home equity and other home lending products. Other factors, like our own website rules and whether or not a product is available within the area you reside in or is within your personal credit score could also affect how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include specific information on every financial or credit product or service. An auto loan application could be rejected because of your credit history or current financial situation. However, by contacting your lender and improving your financial situation and establishing a plan for building an application that won’t be denied in the future. Why was I denied a car loan? Lenders frequently reject applicants because of credit score, credit history and overall debt. Incorrect information on the application could be denied an loan because of simple mistakes on the application. If you miss a section or record information incorrectly, lenders may reject you without giving you a chance to correct inaccurate information. Be sure to review every detail of your application to make sure you have everything correct. You might be able to reapply again with the same information, but being accurate when you first apply will help you save time. Low credit score Many lenders have a minimum credit score to satisfy their eligibility criteria. In the general case, they prefer that you have fair credit — at least 620 points or more. In the event that your score falls lower than this requirement and you are not able to meet the requirements, you will be rejected. There are . However, they will cost you more over the long term and might have higher costs -such as prepayment penalties or origination fees as opposed to standard auto loans. A poor credit history If you have weak or no credit history, lenders won’t be able to gauge your ability to pay for subsequent auto loan installments. They may use it as a reason for denying your application. It will take time to amend this. It is necessary to accept other smaller, less hefty debts to build your credit history before applying for another loan, or apply with a cosigner. A large amount of debt If you’re carrying a large amount of debt gathered from different loans or credit cards in the meantime, your DTI ratio — also known as debt-to-income ratio — will be greater. A DTI ratio of 50% or higher is considered a signal of danger and can cause rejection. Paying down your credit card debt is the best method to reduce your DTI and, if able, a second source of income can also lower your DTI. What do you do if you were refused an auto loan The rejection doesn’t mean an end in itself. Consider a few steps prior to applying for a loan again to increase your chances of being approved. Get in touch with your lender Lenders must give you the specific reasons the application was rejected. If your application was not automatically processed to you, ask for it within 60 days of the application. If not, it falls out of an exemption to the Equal Credit Opportunity Act. If it was as minor as an application mistake, you may make corrections and then apply again. If the cause was you’re credit score, or other debts, you can make improvements prior to applying again. Improve credit score The credit score of your among the most important factors that lenders look at when you apply. Take the time to by reviewing your credit report, paying your debts on time and decreasing your ratio for credit utilization. It will take several months. If you’re in a rush take a look at other options as you work on improving your credit score. But once you’ve built up a solid recent repayment history the lenders will consider you as less risky. Be mindful of your debt. Keeping it low and reducing your debt is the key to attracting future lenders. It is important to pay down your debts currently and also avoiding new loans as well as credit cards. Check your budget and attempt to remove any unnecessary expenses before reapplying. It is also a great way to minimize your debt-to-income ratio (DTI) which is the ratio that lenders utilize to determine whether you’re able to comfortably afford the new loan payment. Find lenders with poor credit scores. There are lenders that accept . This might be a way to get you behind the wheel sooner rather than later. The lenders target people with low credit scores. However, you must be aware of the options as auto loans for those with bad credit tend to have significantly higher interest rates, which could cost you thousands over the long term. Other options Your choices don’t depend on your ability to quickly improve your credit score and reduce the amount of debt you have — although both can certainly help. “Buy here, pay here” dealers A BHPH dealership is not the perfect choice, but it can be a good option if you have poor credit and are in desperate need of an automobile. BHPH dealerships both finance and sell the cars on their lot. Approval standards for credit are generally lower while the approval process can be faster than traditional lending. But the interest rates are high and there are not many cars readily available. Joint auto loans A joint auto loan is the case when you and a third party — typically a partner and spouse — have the responsibility for a car loan. The lender will consider both incomes and credit scores in deciding whether to approve. A joint application could lead to a lower interest rate and the ability to obtain more of a loan because of the added income. Co-signed auto loan A co-signed auto loan can be described as a loan where you still take on the entire responsibility for the monthly payments but have another person backing your loan. Similar to a joint auto loan the credit history as well as the co-signer’s credit score will be factored in when you apply. This can increase the chances of approval, which could translate into more terms and conditions. The bottom line If you’ve been denied, you should take an extra step. Your lender will need to provide a written statement stating why you were rejected. Similar to everything related to financial matters, being prepared is essential. When you next apply, do your research, keep an eye on your credit score, and reduce the total amount of debt you have before time. This will help ensure your application is the best it can be when you present it to the lender. Learn more
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Written by personal and business Finance contributor Kellye Guinan is a freelance editor and writer with over five years of experience in personal finance. She is also employed full-time at the local library, where she assists the community gain access to information on financial literacy, in addition to other subjects. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances with clear, well-researched details that cut otherwise complex subjects into bite-sized pieces.
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