There are obvious reasons for car loans to be rejected. In some cases, you probably know if your credit score isn’t high enough or you applied for more car than you can afford. However, there are a number of reasons car loans are rejected that people have no idea about. And in many cases, it’s due to their lack of understanding of how credit works. Here are four common reasons why auto loans are rejected. We’ll also explain what you can do to prevent the next auto loan application from being denied for the same reason.
You Made Mistakes on the Application
A surprising number of car loan applications are rejected due to mistakes. Sometimes the person failed to fill out all required sections. For example, you didn’t provide enough detail regarding your identity, your employment, your income or the purpose of the loan. In other cases, you made a mistake writing something down. An error when writing down your address or salary could get the application tossed. Spelling errors may be used to toss the application, too. The solution is to proofread your application and ask someone else to double-check it, too.
Your Credit Report Makes You Look Like a Worse Candidate Than You Really Are
Most people already know when they have a sketchy credit history. Overdue accounts and past bankruptcies can hurt you. However, there may be errors on the credit report that hurt your image with creditors through no fault of your own.
The solution is to check your credit report before you apply for a car loan and clean up errors on the report. You also have to talk with some of your creditors directly to see what can be done. You can have negative entries removed when you contact the company and ask them to remove adverse information in exchange for a payment. They’ll update the information they report to each credit bureau.
However, not that the procedure for this varies from company to company. Some are also more difficult to deal with. Alltran, for instance, is notorious for being persistent and not always living up to their end of the deal. That’s why you have to make sure that any deal you make with them is written down on paper. Alltran deals with student debt and medical debt and won’t hesitate to call friends and even neighbours if you have any debt with them. But you can ask them to remove negative entries on the credit report if you get caught up on payments or pay off the debt. You can also work with a professional that will help get rid of them.
You Had Poor Timing
Sometimes the issue isn’t your loan application but when you applied for the car loan. You may be denied if you applied for other loans around the same time. If you’ve recently applied for another loan, the spike in your debt to income ratio hurts your car loan application. One solution is not applying for other loans in addition to the car loan. If this may be why the car loan was rejected, wait things out, reduce your debt load or seek out a co-signer.
Your application might be denied because your credit history is too short. The solutions here range from waiting until you have a solid payment history or reducing the lender’s perceived risk. Co-signers can help in this regard.
You Look Like a Bad Risk
You might not be considered a good credit risk if you just started a new job. Lenders are afraid to extend a car loan when you’re still in your probationary period at work. Wait until you’re a full-time employee before trying again. Unstable employment history can hurt you, too. You could try to stay with the same job for an extended period of time to alleviate these concerns. Alternatively, you could increase your down payment or get a co-signer.
Missing documents will hurt you here, too. This is why you must provide sufficient proof of income documentation if you want the car loan approved. This is where working under the table will hurt you, though variable income will create problems as well. If you can’t provide proof of auto insurance and identity, they may decline you as too great a risk, too.
Your car loan could be denied for reasons that make sense only to the lender. Follow our tips to avoid the rejections that could have been avoided.