Are you denied an 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 smarter financial decisions by offering interactive tools and financial calculators that provide objective and original content. We also allow users to conduct research and analyze data for free – so that you can make sound financial decisions. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this site are from companies that compensate us. This compensation can affect the way and where products appear on this website, for example, for example, the order in which they appear within the listing categories, except where prohibited by law for our mortgage or home equity products, as well as other home lending products. This compensation, however, does have no impact on the information we provide, or the reviews you see on this site. We do not cover the entire universe of businesses or financial offers that may be available to you. yourstockbank/Getty Images
4 min read. Published on October 12, 2022.
Writer: Kellye Guinan Written by Personal and business finance writer Kellye Guinan is a freelance editor and writer with more than five years of experience in personal finance. She is also an employee full-time at her local library where she helps people in her community gain access to information on financial literacy, among other subjects. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers feel confident to control their finances through providing clear, well-researched information that breaks down complicated topics into manageable bites. The Bankrate promise
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So, this compensation can influence the manner, place and in what order items appear within listing categories in the event that they are not permitted by law. We also offer mortgage, home equity, and other products for home loans. Other factors, like our own rules for our website and whether the product is available within the area you reside in or is within your own personal credit score could also affect how and where products appear on this website. We strive to offer the most diverse selection of products, Bankrate does not include specific information on each credit or financial product or service. A car loan application could be rejected due to your credit history or your current financial status. However, by contacting your lender and improving your finances and establishing a plan for making an application that won’t be rejected in the future. Why was I not able to get an auto loan? Lenders frequently reject applicants because of credit score, credit history and overall debt. There are mistakes in the application. You can be denied a loan because of simple mistakes on the application. If you do not complete a section or write incorrect information the lender could reject your application without giving you a chance to update inaccurate details. Always review each detail on your application to make sure you are in complete compliance. You might be able to reapply again however, being precise when you first apply will save you time. Poor credit score Most lenders have an upper limit on credit scores in order to meet their eligibility criteria. In the general case, they want that you have fair creditwhich is at least 620 points or higher. If your credit score is less than the minimum and you are not able to meet the requirements, you will be rejected. There are . However, these are more expensive in the long run and could have higher feessuch as prepayment penalties or origination fees as opposed to standard auto loans. A poor credit history If you have weak or no credit background, lenders won’t be able to gauge your ability to make the future auto loan repayments. They could use this as a reason to reject your application. However, it’s going to take time to rectify this. You’ll need to take on other smaller, less hefty debts to build your credit history prior to applying again or apply with a co-signer. A large amount of debt If you have a lot of debt from other loans as well as credit cards, your DTI ratio — also known as debt-to-income ratio will be greater. If you have a DTI ratio of 50% or higher is considered to be a red flag and may result in rejection. The process of paying down credit card debt is the best method to reduce your DTI, but if you’re capable, another source of income can also reduce your DTI. What do you do if you were refused an auto loan A rejection isn’t the end of the world. Consider a few steps prior to applying again to increase your chances of approval. Contact your lender Lenders are required to explain the reasons why your application was denied. If the application isn’t sent automatically, request the information within 60 days after the application. Otherwise, it will fall outside of an exemption to the Equal Credit Opportunity Act. If the cause was as easy as an application error, you can make adjustments and apply again. If the issue was due to the credit rating or other financial obligations, you are able to make improvements before you apply again. Improve your credit score. Credit score one of the primary factors considered by lenders when they consider granting you a loan. Be sure to spend time looking over your credit score, paying your bills on time and lowering the ratio of your debt to credit. This can take a few months. If you’re trying to get a loan in a hurry think about other options while you work on improving your credit score. However, once you’ve earned an excellent repayment history, lenders will see you as less risky. Minimize your debt Lowering your debt is a crucial factor in being able to attract future lenders. You should focus on paying down your current debts while making sure to avoid the possibility of getting new loans as well as credit cards. Check your budget and attempt to eliminate any unnecessary expenditures prior to applying for. It is also a great method to reduce your debt-to-income ratio (DTI) which is the ratio that lenders use to determine if you’re able to be able to afford a new loan to pay. Find lenders with poor credit scores. There are lenders that take . This might be a way to be able to get behind the wheel sooner rather than later. They target people with low credit scores. However, compare options carefully as auto loans for bad credit tend to have much higher interest rates that could cost you thousands in the long term. Other options Your choices don’t depend on your ability to quickly improve your credit score or reduce the amount of debt you have — although they can both be beneficial. “Buy here, pay here” dealers A BHPH dealership isn’t ideal, but it could be a viable option for those with a low credit score and are looking for an automobile. BHPH dealerships both sell and finance the vehicles on their lots. Credit approval standards are generally lower as well as the procedure is much quicker than traditional loans. But the interest rates are high, and there are less automobiles readily available. The joint auto loans An auto loan is where you and someone else — typically a partner or spouse — share the responsibility for the car loan. The lender will take into consideration both income and credit scores in deciding whether to approve. A joint application could result in a lower interest rate and the ability to accept an additional loan due to the additional income. A co-signed car loan Co-signed car loan will mean that you take on the entire responsibility for the monthly payments but have an additional person to back the loan. As with co-signed auto loan the credit history as well as the co-signer’s credit history will be factored in during the application process. This will increase your chances of approval, which could translate into more terms and conditions. The main thing to remember is that if you’ve been rejected, take a step back. Your lender will need to provide a written statement stating why you were rejected. Similar to everything that involves financial matters, being prepared is essential. When you next apply to a lender, research the situation and keep an eye on your credit score, and reduce your overall debt prior to time. This will help ensure your application is as perfect as it can be when you send it to an lender. Learn more
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Written by personal and business finance Contributor Kellye Guinan is a freelance editor and writer who has more than 5 years experience working in the field of personal financial planning. She also is a full-time worker at her local library where she helps people in her community get information about financial literacy, in addition to other subjects. 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 control their finances through providing clear, well-researched facts that break down otherwise complicated topics into digestible pieces.
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