So you got denied on a car loan application, no big deal! It’s not uncommon for a lender to reject your car loan application for a number of reasons. It’s also very possible to change your circumstances and get yourself approved for a car loan if you’re able to make some changes to your financial situation. In this article, we’re going to talk about why you may have been denied a car loan and what you can do to be approved for a car loan in the future.
Reasons Why You May Not Have Been Approved
Lenders reject people for car loans all the time, these are the four most common reasons Canadians get denied a car loan by lenders:
Poor credit score: Most lenders have a minimum credit score they want to see out of their applicants for them to consider approving the loan. Typically, lenders like to see a credit score of at least 600 for the loan to be considered. If it’s lower than this, the lender will see you as being too high a risk to not be able to repay the loan.
Errors on your application: A lender will deny you a car loan if there are errors on your application. This could mean missing a section of the application or filling out the form incorrectly. Be aware that they likely won’t tell you that your denial was due to an error on your application.
No or minimal credit history: Lenders want to know that you’re a responsible borrower, the way they decide this is by looking at your credit score and credit history. If you haven’t used credit in the past, they will have nothing to judge on whether or not you’re going to be a responsible borrower.
You have a large outstanding debt: If you have a large debt owed from other loans or credit cards, your debt-to-income ratio will be increased. Typically, a debt-to-income ratio of over 50% would be a red flag to lenders and would lessen the likelihood of being approved for a car loan.
What To Do If You’re Denied a Car Loan
If you end up getting rejected for a car loan, don’t be discouraged, there are lots of things you can do to change your situation and get yourself approved in the near future. Here are five things you should consider doing if you’ve been rejected for a car loan.
1. Contact the lender you applied with
A great way to make sure you don’t get rejected again is to reach out to the lender and find out the reason your application was denied. Lenders are required to tell you the reason your application was denied. Once you know, you can work on improving whatever the factor was until you decide to apply again. If it was as simple as an error on the application, you should be able to simply make the adjustment and re-apply.
2. Improve your credit score
Your credit score is the main factor lenders look at when considering your eligibility for a car loan. Therefore if you’re rejected due to a low credit score, you need to take a few months at minimum to improve your credit. You can do this by consistently making any loan or credit payments on time and in full. If you miss any payments you will only continue to hurt your credit score and lessen your chances of being approved for a car loan when you decide to re-apply.
3. Lower your debt amounts
A lender may reject your loan application because you have too much outstanding debt. If this is the case, you need to make an effort at lowering your debt amount and not take on any new loans.
4. Look for poor credit lenders
Some lenders specialize in working with Canadians with poor credit. If you’ve had no luck obtaining a loan with other lenders in the past, consider finding a lender who is better suited to working with people with less than perfect credit. However, it’s important to remember that working with these lenders often means higher interest rates so it’s important to compare lender rates before applying.
5. Consider using a co-signer
Using a co-signer is a great option to get approved for a loan if you can’t get approved for one. The payments are still completely your responsibility but if you fail to make your payments on time and in full, the co-signer will be responsible for making up for them. This is why it’s incredibly important to ensure you can keep up with the monthly payments before opting for a co-signer because if you can’t you’re putting the co-signer in a terrible situation.