The Reasons Auto Loan Lenders Deny Loan Applications

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Even with poor credit.

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The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.


, - May 25, 2016

Car loan approval depends upon the soundness of your personal financial information and the willingness of auto loan lenders. Loan requirements primarily consist of personal income and a positive credit rating. Without a good credit score, a car loan on favorable terms is next to impossible. That is not to say that you cannot get a loan. There will, however, be a price to securing it. Before you apply for a car loan, take some time to understand why lenders might say no to your request. If you know the reasons, you will be better prepared to avoid them.

Credit Score

By far, the most common reason that auto loan lenders refuse an application is because of the applicant’s poor credit score. A score of 620 or lower is generally considered poor. Thus, any potential car loan borrower with this credit rating should not expect to secure a car loan on favorable terms. The primary locations people go to take out car loans include credit unions, banks and dealerships. All of them will lean heavily on your credit score when determining your credit worthiness. Loaning money is, for lenders, an assessment of risk. Borrowers with poor credit are considered a bad risk, thus their applications are denied.

Any time a creditor checks your credit report for any reason, your score lowers by a point or two. This is because credit agencies see constant checks on your credit as an indication you are constantly looking to take on more debt. This is an irresponsible position and represents a red flag to a crediting company to reject your request. Auto loan brokers and car loan lenders should take this into consideration when you walk through their door and should be willing to perform other background checks on you prior to checking your credit score.

Loan Documents

Another reason why lenders might say no to an application is incomplete and/or missing loan documents. A correctly filled-out application, proof of income and other personal information are required in order for a loan to be approved. A potential borrower who has nothing to hide has no reason to be dishonest on a loan application. However if required information is left off purposely, lenders will look upon that with suspicion and deny the application on principle.

No Credit

A third reason why lenders may deny an application is due to the absence of credit. If you want to secure a car loan but have no credit, the loan lender has trouble determining your credit worthiness because there is no record for you. If this is the case, you may need to get a co-signer for your car loan. A co-signer is someone with a good credit score who signs onto the loan with you. If you default, it becomes the co-signer’s responsibility to pay back the loan. No credit is far better than bad credit. So if you fall into this category, don’t fret. If you are turned down for an auto loan because you have no credit history, either find a co-signer or do something to build your credit such as obtain a credit card or charge card and use it wisely.

Financing through an online lender is sometimes easier because their requirements may be less stringent. You may be saddled with a higher interest to compensate for the risk. In addition, the loan terms may change halfway through repayment, so be sure you fully understand the terms of the loan.

Auto loan lenders will turn down a loan application for a number of reasons. The most common is due to poor credit on the part of the borrower. Other reasons include the borrower possessing no credit or neglecting to provide the required loan documents. If you are worried about your credit rating, you can check it from time to time. Before you apply for an auto loan, it might be a good idea to check it so you know what kind of response you can expect to receive from the lender.

Gaining car loan approval is possible from various types of auto loan lenders. Ideally, before you start car shopping you get pre-approved for a car loan. This way, you will be under no pressure to finance after you have chosen the car. Different lenders are available to loan you money to purchase a new or used car. These include banks, credit unions, online loan lenders and the dealerships themselves. With a good credit score, car loan approval is likely, but in order to get the best car loan terms possible, you should carefully consider from whom you borrow money.

Auto Loan Lenders

Banks and credit unions are two places to check when you need a car loan. Securing a loan through a bank or credit union may be more difficult than elsewhere because they will weigh your ability to repay carefully. However, since any money they loan you goes on their books as an asset, loaning you money increases their ability to make more loans. If you are a responsible borrower, then the deal is all the better.

Financing through an online lender is sometimes easier because their requirements may be less stringent. You may be saddled with a higher interest to compensate for the risk. In addition, the loan terms may change halfway through repayment, so be sure you fully understand the terms of the loan.

Selecting an auto loan lender that is right for you will depend upon your credit score, your need for a vehicle and your due diligence. Compare all of your options before deciding. With good credit you should be able to get the best rate possible, but it is up to you to find it.

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The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.


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