What is the next step after a car loan refusal?
It’s easy to feel discouraged after a car loan rejection, but there’s no reason to panic. Just because you’ve been turned down in the past (or even today!) doesn’t mean you’re out of the running just yet. These are ways to improve your chances of getting approved for a car loan – it can help to work with the right lender for your situation.
Common reasons for car loan denial
It’s not always possible to qualify for an auto loan every time you apply. Your current personal situation, income, credit history, and even the vehicle you want to finance can all influence your chances of getting loan approval.
Two of the most common reasons for auto loan denial are lack of income and a bad credit score. Here are some ways to combat them and increase your chances of getting approved for vehicle financing after a denial.
Problem: insufficient income
To qualify for a car loan, you must meet income requirements. A steady income is a key component to getting car finance approval. Additionally, many lenders also have work history stipulations that require you to be in your current job for at least six months to a year.
Specific income requirements vary depending on the type of lender you work with and the amount you hope to fund.
Generally, if you bring in a monthly gross income of around $1,500 to $2,500, you’re likely to meet the income requirements of many auto lenders if you’re aiming for a modest vehicle. Having a stable work history also helps.
And after? Consider a joint car loan
The amount of disposable income you have also matters. If your income is tied to other bonds or loans, or if your monthly income isn’t enough, consider a joint auto loan with a co-borrower.
Co-borrowers help you meet income requirements by adding their income to yours and, if approved, the loan is called a joint car loan. Most lenders prefer life partners and spouses as co-borrowers since you can prove that your resources are pooled. Instead of just your name and the lender’s name listed on the vehicle title, the co-borrower’s name is also listed. This means that you both have obligations towards the car loan and that you get equal rights to the vehicle. Co-borrowers can often help borrowers obtain larger loans.
Problem: Bad credit
Your creditworthiness is defined as your ability to borrow money, and your credit score allows lenders to make a quick judgment on your credit history. Borrowers with a credit score of 660 or less are generally considered bad credit borrowers.
With a credit score in this range, it can be difficult to find a lender willing to work with you. Traditional auto lenders place a lot of importance on your credit reports and score. If your credit history isn’t quite up to snuff, it could mean a denial of vehicle financing.
And after? Consider special financing
However, some lenders are willing to help borrowers with less than perfect credit. If you’re working with a financing dealer who has signed up with subprime lenders, your credit score is only one part of the equation.
Subprime lenders look at your situation in terms of income, down payment amount, work history, living expenses, financial and residential stability, and other factors. Instead of relying solely on your credit score to make an auto loan approval decision, a broader picture of your financial situation is considered.
Many subprime lenders also have first-time buyer programs because they can make the difference between no credit and bad credit. They also help borrowers whose credit rating has dropped due to setbacks such as bankruptcy and repossession.
Not sure why you were denied auto financing?
If you’re not entirely sure why you can’t get approved for a car loan, ask the lender who declined your application. Lenders are required to let you know why they turned you down, usually in the form of a letter. If you have applied for vehicle financing with a direct lender, you may be able to ask them in person and discuss your next options.
Don’t be afraid to ask questions about how you can improve your chances of being approved. Everyone’s situation is different and some lenders do not work with borrowers with unique credit situations. Many traditional auto lenders prefer borrowers with clean reports, and even with a good credit score, there may be something in your credit reports that a lender can’t get around.
A good way to prepare for a car loan is to check your credit reports and scores. You can request a free copy of your credit reports at www.annualcreditreport.com. This is a trusted government website, and you can request your three credit reports from Experian, TransUnion, and Equifax. These credit reporting agencies may report different information, so be sure to review all three to see what lenders see when you apply for new credit.
Take the next step
Even when you’re ready to have enough income to pay for a vehicle and know what’s on your credit reports, bad credit can still get in the way of your next car loan. If this is your case, it might be time to look into other loan options.
Here has Auto Express Credit, we want to make it easy to find subprime lenders equipped to help you meet unique credit challenges.
For the past two decades, we have maintained a nationwide network of dealerships specializing in financing. Get started on the road to car financing by completing our free car loan application form. We will look for a dealer in your area that has bad credit loan resources.