Are you 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 decisions by offering interactive financial calculators and tools, publishing original and objective content. We also allow users to conduct research and compare data for no cost – so that you can make informed financial decisions. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this site come from companies that compensate us. This compensation could affect how and where products appear on this site, including for instance, the order in which they appear within the listing categories, except where prohibited by law for our mortgage, home equity and other products for home loans. This compensation, however, does have no impact on the information we provide, or the reviews you read on this site. We don’t include the entire universe of businesses or financial offers that may be accessible to you. yourstockbank/Getty Images
4 min read Published October 12, 2022
Written by Kellye Guinan Written by Personal and Business Finance writer Kellye Guinan is an editor and writer on a freelance basis with over five years of experience in personal finance. She is also an employee full-time at her local library where she assists her community access information about financial literacy, as well as other subjects. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping their readers gain the confidence to take control of their finances with clear, well-researched information that breaks down complex topics into manageable bites. The Bankrate promises
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We make sure that everything we publish is objective, accurate and trustworthy. The loans reporter and editor concentrate on the areas that consumers are concerned about the most — different types of lending options as well as the best rates, the top lenders, how to repay debt, and many more, so you’re able to be confident about making a decision about your investment. Integrity of the editing
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There are money-related questions. Bankrate has the answers. Our experts have been helping you manage your money for over four years. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our information is trustworthy and reliable. Our award-winning editors, reporters and editors create honest and accurate content that will help you make the best financial decisions. The content created by our editorial staff is objective, truthful and is not influenced by our advertisers. We’re transparent about how we are capable of bringing high-quality content, competitive rates and useful tools to you , by describing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products andservices or by you clicking on certain links posted on our site. So, this compensation can influence the manner, place and in what order products are displayed within the categories of listing in the event that they are not permitted by law. This is the case for our credit, mortgage, and other home lending products. Other elements, like our own proprietary website rules and whether the product is offered in your region or within your personal credit score can also impact how and where products appear on this site. Although we try to offer an array of offers, Bankrate does not include information about every credit or financial product or service. A car loan application might be denied due to your credit score or financial circumstances. But by reaching out to your lender and reorganizing your finances, you can work on building an application that won’t be rejected in the near future. Why was I refused an auto loan? The majority of lenders reject applicants because of credit score, credit history and overall debt. Incorrect information on the application can be denied an loan because of simple mistakes on the application. If you miss a section or note information incorrectly the lender could reject your application without giving you the opportunity to correct inaccurate information. Be sure to review every detail of your application to ensure that you are in complete compliance. You might be able to reapply again with the same information, but being accurate the first time will help you save time. A low credit score is a common problem for lenders. require an upper limit on credit scores in order to meet their criteria for eligibility. The majority of lenders need to see fair credit- at least 620 points or more. In the event that your score falls lower than this requirement, you will immediately be denied. There are . But these will cost more in the long run , and may have more fees -for example, the origination fee or prepayment penalty that are higher than traditional auto loans. Poor credit history: If you have a limited or no credit background, lenders won’t be able to gauge your ability to pay for the future auto loan installments. They might use it as a reason for denying your application. It will take time to amend this. You will need to take on other, smaller debts to build your credit score prior to applying again or with a co-signer. Large amount of debt If you’re carrying a large amount of debt gathered through various loans as well as credit cards in the meantime, your DTI ratio, also known as the debt-to-income ratio will be greater. A DTI percentage of fifty percent or more is a warning sign and could result in rejection. Paying down your debts is the best way to reduce your DTI and, if able, a second source of income can also lower your DTI. What to do if you were denied an auto loan The rejection doesn’t mean the end of the world. Do a few things before applying again to increase the chances of getting approved. Contact your lender Lenders must give you the specific reasons your application was denied. If it isn’t automatically sent you can request to receive it in the 60-day period following the date of your application. If not, it falls out of The Equal Credit Opportunity Act. If it was as minor as an application mistake, you may make corrections and apply again. If the reason was your credit score or any other debts, you could work on improving them prior to applying again. Improve credit score The credit score of your among the primary factors considered by lenders when they consider granting you a loan. Make sure you are looking over your credit score, paying your debts on time , and improving your ratio for credit utilization. It will take several months. If you’re trying to get a loan in a hurry think about other options while you work to improve your score. Once you’ve established an excellent repayment history and have a good credit score, lenders will view you as less of a risk. Reduce your debt. Lowering your debt is key to attracting prospective lenders. You should focus on paying down your debts currently and keeping clear of the possibility of getting new loans or credit cards. Review your budget and try to eliminate any unnecessary expenditures before reapplying. It is also a great method to reduce your debt-to-income ratio (DTI), which lenders employ to determine if you have enough money to be able to afford an additional loan to pay. Look for poor credit lenders There are lenders who will take . This may be a means to be able to get behind the wheel sooner instead of later. They target people with low credit scores. However, compare options carefully — auto loans for bad credit tend to have more expensive interest rates which could cost you thousands in the long run. Other alternatives Your options don’t hinge on how you can improve your credit and lower the amount of debt you have — although both can certainly help. “Buy here pay here” dealers A BHPH dealership may not be perfect, but it can be a good alternative if you have a low credit score and are desperate for a vehicle. BHPH dealerships finance and sell the cars on their lot. The standards for approval of credit tend to be lower and the process is quicker than traditional lending. But the interest rates are high and there are not many cars readily available. The joint auto loans A joint auto loan is the case when you and a third party usually a partner or spouse — are both liable for the same responsibility for a car loan. The lender will take into consideration both income and credit scores when deciding on an approval. A joint application can also result in a lower interest rate as well as the chance to obtain an additional loan due to the additional income. A co-signed car loan A co-signed auto loan can be described as a loan where you have the complete responsibility for your monthly payments, but you have an additional person backing your loan. As with a joint auto loan, both your credit history and your co-signer’s credit history will be factored in during the application process. This will increase your chances of approval, and could mean more terms and conditions. The bottom line If you’ve been denied, you should take the time to think about it. Your lender should provide a letter that explains the reason for your rejection. As with anything that involves finance, preparedness is key. The next time you make an application to a lender, research the situation be aware of your credit score and lower the total amount of debt you have before time. This will help ensure your application is as good as it can be when you present it to an lender. Learn more
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Written by Business and personal financial contributor Kellye Guinan is a freelance editor and writer with over 5 years experience working in the field of personal finance. She also is employed full-time at the local library, where she assists people in her community get information about financial literacy, among other subjects. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain confidence to control their finances with clear, well-researched details that cut complicated topics into digestible pieces.
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