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 better financial choices by providing you with interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct research and analyze data for free 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 site come from companies that pay us. This compensation can affect the way and where products appear on this website, for example such things as the order in which they may be listed within the categories of listing in the event that they are not permitted by law. Our mortgage, home equity and other home lending products. This compensation, however, does not influence the content we publish or the reviews that you read on this site. We do not include the vast array of companies or financial deals that could be accessible to you. yourstockbank/Getty Images
4 min read Published 12 October 2022
Kellye Guinan Kellye Guinan Written by Personal and Business Finance writer Kellye Guinan is a freelance editor and writer with more than five years’ experience in personal finance. She also is a full-time worker at her local library where she assists people in her community gain access to information on financial literacy, as well as other subjects. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers feel confident to take control of their finances by providing clear, well-researched information that breaks down complex issues into digestible chunks. The Bankrate promise
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There are money-related questions. Bankrate can help. Our experts have helped you understand your finances for more than four decades. We are constantly striving to provide our readers with the professional advice and tools required to make it through life’s financial journey. Bankrate adheres to a strict code of conduct policy, which means you can be confident that our content is truthful and reliable. Our award-winning editors and reporters produce honest and reliable information to assist you in making the best financial decisions. The content created by our editorial team is factual, objective and is not influenced by our advertisers. We’re honest about the ways we’re in a position to provide quality content, competitive rates, and useful tools for you , by describing how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated for the placement of sponsored products or services, or through you clicking specific links on our site. Therefore, this compensation may affect the way, location and in what order items are listed, except where prohibited by law for our mortgage, home equity, and other products for home loans. Other factors, like our own website rules and whether a product is offered in your region or within your own personal credit score may also influence the manner in which products are featured on this site. Although we try to offer an array of offers, Bankrate does not include information about each credit or financial product or service. An auto loan application might be denied due to your credit history or financial circumstances. If you contact your lender and reorganizing your finances and establishing a plan for building an application that won’t be rejected in the future. Why did I get refused a car loan? Most lenders deny applicants because of credit score credit history, credit history and overall debt. There are mistakes in the application. You could be denied a loan because of simple mistakes on the application. If you do not complete a section or record information incorrectly the lender could reject your application without giving you a chance to update inaccurate details. Make sure you review every aspect of your application to ensure that you have all the information you need. It is possible to apply again however, being precise the first time around can save you time. A low credit score is a common problem for lenders. require minimum credit scores in order to meet their eligibility criteria. In general, lenders need for fair credit — a score of 620 or higher. If your credit score is lower than the minimum then you’ll be immediately refused. There are . But these will cost more in the long run , and may have more fees -for example, origination fees or prepayment penalties that are higher than traditional auto loans. A poor credit history If you have limited or no credit background, lenders won’t be able to gauge your ability to make subsequent auto loan installments. They could use this as a reason to reject your application. Unfortunately, it will take time to amend this. You’ll need to take on additional smaller, less hefty debts to build credit before applying for another loan, or with a co-signer. In the event of a large amount of debt, if you have a lot of debt gathered through different loans or credit cards, your DTI ratio — also known as debt-to-income ratio — will be greater. A DTI proportion of 50% percent or higher is considered a warning sign and could cause rejection. Paying down your debts is the best way to lower your DTI however, if you’re capable, another source of income can lower your DTI. What to do if you were denied an auto loan A rejection isn’t an end in itself. Take a few steps before applying again to boost the chances of getting approved. Contact your lender Lenders must provide you with the exact reasons your application was denied. If it isn’t automatically sent you can request it within 60 days of your application. Otherwise, it will fall out of 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 financial obligations, you are able to improve them prior to submitting another application. Improve credit score Your credit score is among the most important factors that lenders look at when they consider granting you a loan. Take the time to by looking over your credit score and paying off your debts on time , and lowering your credit utilization ratio. This will take a few months. If you’re looking for a loan quickly 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 and have a good credit score, lenders will view you as less risky. Be mindful of your debt. Keeping it low and reducing your debt is key to being able to attract the attention of future lenders. The focus should be on paying down your current debts while making sure to avoid the possibility of getting new loans and credit card purchases. Check your budget and attempt to cut out any unnecessary costs before applying again. is also an excellent way to minimize your debt-to-income ratio (DTI) which is the ratio that lenders employ to determine if you have enough money to be able to afford an additional loan repayment. Search for lenders with low credit scores. There are lenders that take . This could be a method to get you behind the wheel sooner instead of later. They target drivers 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 over the long run. Other options Your choices don’t hinge on how you can swiftly improve your credit score and reduce the amount of debt you have — although each can be helpful. “Buy here pay here” dealers A BHPH dealership may not be perfect, but it can be an option for those with an unsatisfactory credit score and are in desperate need of an automobile. BHPH dealerships also sell and finance the vehicles on their lots. Credit approval standards are generally lower and the process is quicker than traditional lending. But the interest rates are high, and there are less vehicles readily available. The joint auto loans The term “joint auto” loan is when you and someone else usually a partner or spouse — are both liable for equal responsibility for the car loan. The lender will take into consideration both income and credit scores when making an approval decision. A joint application could lead to a lower interest rate as well as the chance to obtain an additional loan because of the added income. A co-signed car loan An auto loan can be described as a loan where you take on the entire responsibility for the monthly payments but have someone else backing the loan. As with the joint auto loan, both your credit history as well as the co-signer’s credit score will be factored in during the application process. This increases your chance of approval, and could mean more and terms. The bottom line If you’ve been denied, take the time to think about it. Your lender must provide you with a letter explaining the reason you were denied. Like everything else that involves finance, preparation is crucial. Next time you apply make sure you do your homework and keep an eye on your credit score, and reduce your total debt ahead of time. This will help ensure your application is the best it can be when you send it to a lender. Find out more
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Written by Personal and business financial writer Kellye Guinan is a freelance editor and writer with over five years of experience in personal financial. She is also a full-time worker at her local library where she helps her community access information about financial literacy, as well as other topics. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to take control of their finances through providing precise, well-researched and well-organized facts that break down otherwise complex subjects into bite-sized pieces.
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