If you recently applied for an auto loan but were denied, you need to figure out why you were turned down, learn how to fix it, and find the right place to apply with the next time around. These three tips can help you get approved for a car loan after previously being denied.
Step 1: Find Out Why You Were Denied
The first thing you need to do is determine the reason(s) why you were denied an auto loan. Each case is different, but some common explanations why you may have been denied include:
- Bad credit or no credit – Most lenders, like banks and credit unions, have strict credit requirements you need to meet. If your credit is too low or too thin, you have a greater chance of being denied.
- Not enough income – All lenders have income requirements you need to meet. You could be turned down for a car loan if your income is too low, or you rely on non-taxable income such as Social Security.
- Debt to income ratio is too high – Something that all lenders do is “debt you out” by calculating your debt to income (DTI) ratio. This means they determine your available income by comparing your bills to your gross (pre-tax) monthly income. Your DTI ratio is calculated by adding up your monthly bills, including estimated vehicle and insurance payments, and dividing the sum by your pre-tax monthly income. Generally, lenders don’t approve borrowers with a DTI ratio exceeding 45% to 50% of their pre-tax monthly income.
Two other reasons for being denied may be your residence situation or your employment history. If you’ve moved around a lot in the past three years, a lender could deny you for not having a stable residence history. If you changed jobs frequently, or you’ve had long gaps between employment, a lender could deny you based on that as well.
Step 2: Take Steps to Fix Your Situation
In order to correct what led to being denied an auto loan, you must check your credit score and credit reports. Even if you’re confident it wasn’t your credit, it doesn’t hurt to double check.
Most car lenders look at your FICO credit score, which is the most common type. You can get your credit score in many different ways. Check to see if your bank, credit union, or credit card provider provides free access to your FICO score. If not, you can pay a small fee to get it directly from FICO or through the credit bureaus.
You can also request your credit reports through www.annualcreditreport.com. All consumers can get complimentary copies of their reports every 12 months from each of the three major credit bureaus: Equifax, TransUnion, and Experian.
Look over all three for inaccurate information that could be negatively affecting your ability to get approved for an auto loan, such as an account listed as in default when it was actually paid as agreed. You're allowed to dispute errors with the report credit bureau(s) and have them removed.
After you’ve double checked your credit score and reports, you can get started on fixing what caused you to get denied for a car loan in the first place. If it is a credit-based reason, you need to take steps toward improving your credit score, such as paying down debt and paying all monthly bills on time.
If the issue was having too little income, you may want to consider adding your spouse as a co-borrower to the loan. A co-borrower can help you meet the income requirements set by a lender because you can combine incomes and qualify together.
Step 3: Find a Dealership Through Us
Finally, the last step is to find the right dealer to work with. It’s possible you went to the wrong one to begin with and that's why you were denied an auto loan. If you have bad credit, you need to find the right dealership for your situation.
Only certain dealers are equipped to handle unique credit situations, and Auto Credit Express can help you find one near you. For over 20 years, we’ve been helping consumers find financing by connecting them to local special finance dealerships. All you need to do is fill out our fast, free, and easy auto car loan request form to get started.