If you were turned down for car financing, you may be wondering why it happened and what you can do next. First, you need to figure out why you were denied and try to fix it. Then, you need to find a lender that can work with you – it’s possible you were applying for an auto loan at the wrong place and didn’t even know it.
3 Reasons Why You May Have Been Turned Down
What went wrong when you applied and were told you didn’t qualify for financing? To start, you should receive an adverse action letter from the dealer or lender that lists the reasons why you were denied credit.
From there, you need to check your credit score and reports. Most lenders look at your FICO credit score, so that's the one you should look at. Many lending institutions and credit card companies offer a free FICO check. If you don't have access, you can check your credit score here.
Once you know your score, you should see what’s on your credit reports. You’re entitled to a free copy of your reports every 12 months from the three major credit bureaus: Experian, Equifax, and TransUnion. You can request these by going to www.annualcreditreport.com. Check to see that all the information is correct, and dispute any negative errors you see immediately.
Now that you have your credit reports and score, you can dig deeper into why you were turned down. Here are three common reasons that you can see reflected in your credit reports:
- You don’t have a credit history – If you’ve never had any credit, you’re going to start from the bottom. Lenders like to see that you have a credit history of some kind before approving you for financing.
- You have a credit history, but it’s not so great – You have multiple lines of credit, but maybe you didn’t pay them all on time or closed too many accounts. Not being careful with your credit is a surefire way to lower your credit score.
- You have too much debt – Your amounts owed makes up 30% of your FICO credit score, making it the second biggest factor at play. If you’re using too much of your available credit, it’s going to lower your credit score. Ideally, your credit card balances should account for no more than 30% of your credit card limits, but the lower, the better. If it's higher than 30%, try to pay down as much as you can.
Where Can I Get Car Financing?
Now you have an idea of where your credit stands, and why it is the way it is. However, the reason you were turned down could be because you didn’t apply with the right lender the first time around.
So, where should you go? We can help with that, but first let us explain what your options are once you’ve been turned down for a car loan. Generally, you have two types of lenders you could work with:
- Subprime lenders – These lenders work through special finance dealerships, and tailor their lending programs to consumers dealing with various credit issues. They run credit checks, but consider outside factors such as income and residence stability when extending financing. When you take out a loan from a subprime lender, you get the chance to build or rebuild your credit.
- Buy here pay here dealers – These dealerships are also lenders, and offer loans for the vehicles on their lots in-house. Unlike subprime lenders, these dealers don’t usually run credit checks, and base approvals on income and down payment.
Keep in mind that with both types of lenders, you can expect to get approved at an interest rate that’s higher than average, which increases the overall cost of a loan. You can offset this by making the largest down payment you can, or by adding a joint applicant with better credit to the loan.
Let Us Help You Get Started
If you’re ready to work with the right lender this time around, Auto Credit Express is here to help. We've been connecting bad credit car buyers to special finance dealerships that can get them into new and used auto loans for over 20 years.
By simply filling out our free, easy, and no-obligation car loan request form, you gain the power of our nationwide network of special finance dealers. Rather than driving all over town having dealership after dealership run your credit only to turn you down, we'll work to match you with a local dealer that has the lending resources you're looking for.