4 Reasons Why You Didn’t Get Approval for a Car Loan

You want to buy a new car, but you’ve been denied a loan, what do you do? Unfortunately, there’s a lot of reasons why your car loan application may have been rejected. The four most common reasons for application denial are:

  • Too Much Debt: A high debt-to-income ratio may make some lenders leery of facilitating you with a loan. 
  • Application Errors: In some cases, they will have denied your approval for a car loan because of an error you made while filling out the application form. For instance, you may have missed a section, included some incorrect information or forgotten to include a form.
  • No Credit: Lenders want to see proof of consistency when it comes to paying off past loans. Therefore, if you have no credit history, they may feel you are too risky a prospect because they have no evidence to support whether you’ll pay off your debt.
  • Bad Credit: Car loans are frequently denied because of bad credit. If you have a credit score below 670, this is usually considered a bad credit score, which will negatively affect how a lender perceives your ability to pay off a loan.

What to do if you didn’t get approval for a car loan

If you didn’t get approval for a car loan, you can do a few things depending on why they rejected you.

Too Much Debt

If they rejected you because you already have a lot of debt, you need to reduce your debt amount in steady increments. Start by creating a budget and sticking to it. Then work on tackling the largest debts first. Next, you’ll want to avoid adding any debt to the amount you already have, so avoid using your credit card for purchases.

Application Errors

If you think they rejected you because of an error you made on your application, you should contact the lender as soon as possible. Hopefully, in doing so, you will be able to clear up any errors, and they will approve your request. If they can’t resolve the error, then the lender should be able to tell you when you can reapply.

No Credit

If you don’t have any credit history, then you need to start building one immediately. You can do this by applying for a credit card with a cosigner, becoming an authorized user on someone’s credit card, find a cosigner for your line or apply for secured credit.

Bad Credit

If your poor credit is the reason for your rejection, then the first thing you need to do is check your credit report. Your credit report will show you what is negatively impacting your score. Depending on what this is, you can look for ways to improve your credit so you can be approved the next time. Some of the ways you can improve your credit report include paying your bills on time and using your credit cards to make and repay smaller purchases. However, you should keep in mind that it may take you a while to build or rebuild your credit. Therefore, if you need a loan sooner, consider adding a cosigner to your car loan application. A cosigner is someone who will pay your loan if you fail to do so. Having a cosigner makes lenders feel more comfortable, and it’s a good way to show dependability.

Will Getting Denied Hurt My Credit?

It doesn’t feel good to get denied approval for a car loan, but it doesn’t actually hurt your credit score. Since the lender didn’t extend a loan, there’s nothing to impact your score. That being said, having multiple applications denied at the same time will hurt your score. This is because a bank conducts a hard inquiry when you apply for a loan. As a result, your credit score may lower slightly, about five to ten points, whether you’re accepted or not. Therefore if you apply for too many loans, there will be numerous hard inquiries on your credit, which will cause a larger drop.

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