There are many reasons an application for an auto loan might be rejected. Until you know why you were turned down, you may not be able to get the vehicle you need – especially if you're dealing with bad credit. We're exploring the top six reasons for car loan rejection, and what you can do about it.
Why Were You Turned Down?
After you apply for an auto loan, you're either accepted or denied. If you're turned down, lenders are required to let you know why; typically, you receive a written letter with the decision. If you're not notified why you're turned down, you should contact the lender for an explanation.
As a borrower struggling with credit challenges, it can sometimes be difficult to meet all the qualifications a lender asks for. Lenders that work with bad credit rely on many factors for approval, and missing just one of these can stop your application in its tracks.
If you've recently been turned down for a car loan, you may be left wondering what to do next. The first thing you need to do is find out why your loan application was rejected. Once you know what you're up against, you can take steps toward getting what you're after.
6 Reasons for Auto Loan Rejection
Every auto loan situation is different, and the reason you're denied a loan with one lender may not impact the outcome with another. Even though requirements vary from lender to lender, there are six common reasons you might be turned down for an auto loan:
- Income – When it comes to qualifying for a car loan, it's important that you have the ability to make the monthly payment, and can afford the loan in general. You need income to do this, and lenders need to verify that you're going to have this income through the loan term. This means proof of income is required by most lenders. Typically, subprime lenders require, at a minimum, $1,500 to $2,000 a month before taxes for eligibility.
- Debt to income ratio – Your overall income is important to your ability to qualify for an auto loan, but it's only half the equation. Lenders also need to see that you have enough available income to afford to pay all your bills, including a car loan and insurance payment. To do this, they calculate your debt to income, or DTI, ratio. This can be found by adding up all of your monthly bills and dividing the total by your pre-tax monthly income. Lenders typically require a DTI ratio that's 45% to 50% or lower, or you likely won't qualify.
- Not meeting all lender requirements – As a borrower with poor credit, there are a number of qualifications you have to meet in order to be considered for a car loan. These typically include proof of income, residency, and employment; a working phone; personal references; and a down payment. Missing just one of these items can lead to an auto loan denial.
- Paperwork errors – Maybe all the requirements are met, but if your application doesn't match them, it could be turned down. Illegible applications, incorrect information, or misspellings in names can all lead to rejection. Take your time when you're filling out the paperwork, and check all your details before you submit it.
- Adverse credit situations – When you have a poor credit score, it's sometimes for some big bumps in the road on your credit report like bankruptcy or vehicle repossession. Generally, a bankruptcy or a single repossession doesn't stop you from being able to get a car loan, but in some cases, either one can. If you're in an open Chapter 13 bankruptcy that's less than a year old, have a fresh repo within a year of your application, or have multiple repossession or bankruptcies on your credit reports, your loan application is likely to be rejected.
- Bad credit or no credit – Having bad credit or no credit can stop you from getting an auto loan with some lenders, because not all of them work with people that have credit challenges. Even lenders that work with unique credit situations sometimes have limitations on approvals. If this is the reason you're turned down, knowing your credit score and what's on your credit reports gives you the opportunity to see where you can improve.
Getting a Bad Credit Auto Loan
Bad credit doesn't always have to stand in the way of a car loan if you're working with the right type of lender. Subprime lenders finance people with poor credit, but they only work through special finance dealerships, which can be hard to spot if you don't know where to look.
Auto Credit Express can point you in the right direction. We're teamed up with a coast-to-coast network of special finance dealers that are signed up with subprime lenders. Fill out our easy auto loan request form, and we'll get to work matching you with a dealership in your area. Get started right now!