There are many reasons you can be denied auto financing, especially if you're dealing with bad credit. We're looking at some of the top reasons why you may not have been approved, and what you can do about it.
6 Reasons You Can Be Denied Auto Financing
When you're struggling with poor credit, there are often a few obstacles you have to overcome before you can get a car loan. Even if you're sure you have all your ducks in a row, you could still be denied auto financing. Lenders are required to let you know why you were turned down, but if you're still unsure, we can help.
We've compiled a list of six top reasons you may have been denied:
- Income – Most lenders have income requirements, and you’re going to be turned down if you're not able to meet them. You can also be denied if you don't have the right type of income, or aren't able to prove your income.
- Available income – If your existing bills require too much of your income, you could face a rejection. Lenders compare your current debts, including an estimated car loan and insurance payment, to your available income. This is called your debt to income (DTI) ratio, and lenders typically cap this ratio at 45% to 50% of your total income.
- Time on the job – If you're lacking time on your current job, it could also mean a denial. Typically, lenders require that you've had your current job for at least six months to a year. This shows them you have job stability and boosts the odds that you can repay a loan.
- Credit score – A low credit score isn't an issue for all lenders, but traditional lenders usually only work with people that have good credit. Even with the right kind of lender, credit scores can sometimes get in the way, especially if this is combined with other issues like a history of late and missed bill payments.
- Multiple bankruptcies – After a bankruptcy discharge, you can generally get an auto loan approval pretty easily. This may not be the case if you have more than one bankruptcy, though. Many lenders avoid approving borrowers with multiple bankruptcies.
- A fresh repossession – You can get another car loan after a repo, but you usually can't do it right away. After a repossession, you typically become eligible for auto financing with a subprime lender after a year.
Help Yourself Get Approved for a Car Loan
If any of the above issues are standing in your way, there's good news – all of them are easy to solve if you give yourself time. In some cases, just working with the right type of lender can help. Other times, you need to put in a little work to get to where you need to be for an auto loan approval.
They say time heals all things, but while you're waiting, use these tips to give yourself a better chance the next time around:
- Get your credit reports and score – Knowing where you stand should be the first step in car buying. If you don't know what the lenders are seeing, you could be caught off guard by a denial. Right now, you can get weekly credit reports and scores for free from all three national credit bureaus by visiting www.annualcreditreport.com through April of 2021 (one from each bureau ever 12 months after that).
- Repair your credit – Credit improvement doesn't have to be difficult. The biggest thing you can do to help raise your credit score is simply pay your bills on time. You can also raise your score by removing inaccuracies from your credit reports.
- Create a budget – You can help yourself by making a car buying budget, and by calculating your DTI and payment to income ratios yourself. Learn how here.
- Get a co-borrower or cosigner – If income is your issue, applying jointly with a spouse as a co-borrower could be the answer if they have a solid income. If credit is holding you back, a cosigner with better credit could help. Make sure to ask a close friend or family member in advance and go over the requirements and responsibilities of a cosigner.
- Save for a down payment – In some cases, simply borrowing less can be the key. All bad credit auto loans require a down payment, typically at least $1,000 or 10% of the vehicle's selling price. However, the more you put down, the better off you usually are.
These tips can help in most car financing situations, but if you have bad credit, you should work with a lender that can help.
Subprime lenders, found only through dealership special finance departments, are typically the way to go for borrowers with credit issues. They use factors in addition to your credit score to determine approval. However, you need to be prepared and meet a number of qualifications if you don't want to face denial again.
Find Your Next Auto Loan
Just because you've faced auto financing denial in the past doesn't mean it has to stand in your way now. If you're ready to give auto financing another try, let us help you get started.
At Auto Credit Express, we work with a coast-to-coast network of special finance dealers that are teamed up with the lending resources you need. To get the process started today, simply fill out our no-obligation car loan request form. Then, we'll get to work matching you to a dealership in your area that knows how to help.