Here are five reasons why people get declined for financing and how to remedy them for your next application.
1) Bad Credit
Your credit score is key to getting approved for a car loan. If your score is suboptimal, lenders will consider the loan riskier and deny your application.
Furthermore, certain minor situations –from applying for a rental apartment to seeking a mortgage – temporarily affect your score, so try not to apply for a car loan around the same time as other financial events in your life. If you’ve recently borrowed money, your higher debt-to-income ratio will also decrease your score.
But rest assured that you have several options at your disposal if any of these circumstances stand between you and your car loan. You could get a cosigner – a friend or family member with good credit – who will vouch for the loan. If possible, you can reduce your debt ratio and boost your score with lump sum payments. Applicants with low credit scores may have better luck applying for a loan at a credit union, which are likelier than banks to approve loans for people with poor credit.
2) Paperwork Mistakes
Car loan applications ask a lot of questions. If you provide the wrong information – either accidentally or fraudulently – your application will likely be rejected. Mistakes such as misspelling a name or listing an old address are relatively common for borrowers rushing through the application. Occasionally, applicants will fraudulently submit paperwork using another person’s name, address, or credit score, and this could result in criminal charges. Bottom line: Write legibly, use your own information, and triple-check your application for mistakes before you submit it.
Car loans also entail a lot of paperwork, including copies of your driver’s license, proof of income, and auto insurance policy. If any of the information requested is missing from your application, your loan could be declined. Again, triple check that you have submitted all of the documentation required.
Finally, check your credit report for mistakes as well. Reporting mistakes happens, and you might find that your credit report contains incorrect information that has affected your score. Before you apply for a loan – or if you are considering reapplying after your loan was denied – get a free report from Experian, TransUnion, or Equifax, and comb it for errors.
3) Irregular Income
Loan seekers without steady incomes draw additional scrutiny. People who work as freelancers, seasonal employees with irregular income, or under-the-table service providers may have trouble convincing a lender that they can afford to repay the loan. An uneven income is a red flag because lenders look for evidence that you will be able to repay the loan. “Many lenders use debt-to-income ratios to qualify loan applications, so having full-time employment reduces their risk. “However, if your credit score is high, this could get you a good loan at a low interest rate, even if you're a freelancer.”
Bringing on a cosigner could help assuage lenders’ concerns. “A co-signer, with good credit, basically reduces the lender's risk,” Reed says. “Now they have two people who are motivated to make payments to protect their credit history.”
4) Limited Credit History
Younger consumers who haven’t had the opportunity to establish their credit histories are likelier to be flagged than applicants with longstanding financial reputations. Lenders look for historical patterns that suggest you will be able to pay back your loan. If you are new to the credit game, take a step back, reevaluate your needs, and focus on building your credit and reputation before reapplying for that loan.
We have alternative financing options for first time buyers that don’t have co-signers, but you must meet certain bank requirements to qualify. Without credit to base their decision from, job time, verifiable income and down payment are the three most common factors.
5) Requested Too Much
Even if your credit is in shipshape, the amount of money you request to borrow from a lender often determines whether your loan gets approved. You may ask for enough money to buy your dream car, but banks can only
lend you a certain amount based on your credit score and current income.
If you have your eye on, say, a Mercedes-Benz, but don’t yet have the income to back it up, don’t fret. If you get turned down for a loan because you want to borrow more than you afford, it’s disappointing, but ultimately the lender is doing you a favor. You don’t want to ruin your credit by taking on more debt than you can afford, no matter how nice the car is.
If you have been declined for an auto loan from our dealership or even somewhere else, please feel free to stop by our one of our CarSMART locations, Monday through Friday from 9AM till 4PM and ask to speak with one of our knowledgeable credit specialists. Even if we are unable to help you get into an affordable car loan today, we can give you a better understanding of why you’ve been denied for credit and give you valuable information that helps get you back on the road to good credit and getting you the car loan that you deserve!
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Located at 4854 US Hwy 67
Farmington, Missouri 63640
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Jackson, Missouri 63755
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