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Are you denied to get an auto loan? Here’s everything you need to know Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by providing you with interactive tools and financial calculators as well as publishing original and impartial content. We also allow you to conduct research and compare information for free to help you make sound financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site come from companies that pay us. This compensation may impact how and where products are displayed on this site, including such things as the order in which they appear in the listing categories, except where prohibited by law. Our mortgage or home equity products, as well as other home loan products. This compensation, however, does affect the content we publish or the reviews appear on this website. We do not include the entire universe of businesses or financial deals that could be accessible to you. yourstockbank/Getty Images
4 min read Published October 12, 2022
Written by Kellye Guinan Written by personal and business finance contributor Kellye Guinan is an editor and writer on a freelance basis with more than five years’ experience in personal finance. She also is an employee full-time at her local library where she helps her community access information about financial literacy, among other subjects. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to control their finances by providing precise, well-researched and well-researched data that breaks down complex topics into manageable bites. The Bankrate promise
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We are compensated in exchange for the promotion of sponsored goods and, services, or through you clicking certain hyperlinks on our website. This compensation could impact how, where and when products appear within listing categories in the event that they are not permitted by law. This is the case for our credit, mortgage, and other products for home loans. Other factors, such as our own proprietary website rules and whether or not a product is offered in your area or at your own personal credit score can also impact how and where products appear on this website. Although we try to offer an array of offers, Bankrate does not include specific information on every credit or financial products or services. An auto loan application may be rejected due to your credit score or current financial situation. But by reaching out to your lender and improving your finances it is possible to work on creating an application that will not be rejected in the future. What caused me to be refused a car loan? Lenders frequently reject applicants due to their credit score or credit history, as well as overall debt. Incorrect information on the application may be refused the loan due to simple errors in the application. If you miss a section or note information incorrectly lenders could deny you without giving you a chance to update inaccurate details. Always review each detail on your application to ensure that you have all the information you need. You might be able to apply for a second time with the same information, but being accurate the first time will help you save time. Poor credit score Most lenders have a minimum credit score as part of their eligibility criteria. In general, lenders prefer for fair credit -which is a score of 620 or higher. In the event that your score falls lower than the required score then you’ll be immediately rejected. There are . But these will cost more in the long run , and may have more fees -such as prepayment penalties or origination fees that are higher than traditional auto loans. A poor credit history If you have weak or no credit history, lenders won’t be able to assess your ability to pay for subsequent auto loan payments. They may use it as a reason to reject your application. It will take time to amend this. You will need to take on other, smaller debts to build your credit score before applying for another loan, or with a co-signer. Large amount of debt If you’re carrying a large amount of debt gathered from various loans or credit cards in the meantime, your DTI ratio — also known as debt-to-income ratio will be higher. A DTI percentage of fifty% or higher is considered to be a red flag and may lead to rejection. Paying down your debts is the best way to lower your DTI, but if you’re able, a second source of income can help lower your DTI. What do you do if you were denied an auto loan One rejection isn’t an end in itself. Consider a few steps prior to applying again to increase your chances of being approved. Contact your lender Lenders must provide you with the exact reasons the application was rejected. If it isn’t automatically sent to you, ask for to receive it in the 60-day period following the date of your application. In the event that it is not sent, it falls outside of an exemption to the Equal Credit Opportunity Act. If it was as minor as an application error, you are able to make changes and apply again. If the reason was the credit rating or any other financial obligations, you are able to work on improving them prior to submitting another application. Enhance your credit score. Credit score among the main factors lenders consider when deciding whether to approve your application. Be sure to spend time reviewing your credit report and making sure you pay your bills on time and improving your credit utilization ratio. It will take several months. If you’re looking for a loan quickly take a look at other options as you work on improving your credit score. However, once you’ve earned an excellent repayment history and have a good credit score, lenders will view you as less of a risk. Minimize your debt Lowering your debt is key to attracting future lenders. You should focus on paying your current debts and making sure to avoid new loans and credit card purchases. Check your budget and attempt to remove any unnecessary expenses before applying again. It is also a great way to minimize your debt-to-income ratio (DTI), which lenders employ to determine if you’re able to be able to afford an additional loan payment. Search for lenders with low credit scores. There are lenders that take . This could be a method to get you behind the wheel sooner instead of later. The lenders target drivers with low credit scores. However, you must be aware of the options — auto loans for bad credit tend to have more expensive interest rates which could cost you thousands in the long run. Other options Your choices don’t necessarily depend on the ability of you to quickly improve your credit and lower your debt , though they can both be beneficial. “Buy here, pay here” dealers BHPH dealership isn’t perfect, but it can be a viable option for those with an unsatisfactory credit score and are looking for an automobile. BHPH dealerships offer financing and sales of the vehicles on their lot. Approval standards for credit tend to be lower as well as the procedure is faster than traditional lending. But interest rates are very high and there are not many cars available. Auto loans that are joint loans The term “joint auto” loan is when you and someone else — typically a partner and spouse — have the same responsibility for the car loan. The lender will consider both incomes and credit scores when deciding on an approval. A joint application can also lead to a lower interest rate as well as the chance to take on more of a loan because of the added income. Auto loan co-signed loan An auto loan will mean that you still have the complete responsibility for the monthly installments, but with someone else supporting the loan. Similar to the joint auto loan, both your credit history and your co-signer’s credit score will be factored in when applying for the loan. This can increase the chances of approval and may mean more terms and conditions. The main thing to remember is that if you’ve been rejected, take an extra step. Your lender must provide you with a letter that explains the reason for your rejection. Like everything else that involves financial matters, being prepared is essential. The next time you make an application, do your research be aware of your credit score, and reduce your overall debt prior to time. This will ensure that your application is as good as it can be before you submit it to an lender. Find out more
Written by Personal and business financial contributor Kellye Guinan is a freelance editor and writer with over five years ‘ experience within personal financial planning. She also is a full-time worker at her local library, helping the community gain access to information on financial literacy, in addition to other topics. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain confidence to take control of their finances by providing concise, well-researched, and clear facts that break down otherwise complex subjects into bite-sized pieces.
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