What to do When You've been Denied an Auto Loan

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Even with poor credit.


Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

, - October 19, 2018

Were you recently turned down for a car loan? If so, you need to take a step back and analyze the situation so you can identify the steps you need to take to get approved when you try again.

Reasons Why You Were Rejected for a Car Loan

There are many different reasons why a lender may have turned you down for a car loan. While it may be difficult to pinpoint the exact cause, here are four common reasons why you may have been rejected:

  1. Bad credit – Your FICO credit score is the most common score auto lenders look at to approve you. Many traditional lenders turn down applicants who have a credit score below the “good” range (typically a FICO score of 670 to 739). You can get approved for a car loan if your credit score is less than 670, but you may need to finance through a subprime lender. If you apply with the wrong type of lender, your application is more likely to be rejected.
  2. Inaccurate or incomplete information – Whether on accident or not, it can be easy to enter the wrong information on your application. Something as simple as a misspelling or wrong number might cause your application to be rejected. Also, if you forget to send over copies of additional documents – such as proof of income – your application can be turned down because it's incomplete.
  3. Low or irregular income – Besides your credit score, income is the next big thing lenders look at to determine if you qualify, especially if you’re dealing with a special finance lender. These lenders like to see earned income, and someone without W-2 income may find it difficult to qualify. Lenders are going to ask to see your year-to-date earnings to verify you’re able to afford a car loan, and calculate your debt to income (DTI)—how much of your monthly income goes toward debt— and payment to income (PTI) —how much of your income is going toward the car payment – ratios. Ideally, lenders want your DTI below 50 percent (including a car and insurance payment), and your PTI ratio between 15 to 20 percent. So, you may have been turned down if you don’t have enough income, have the right type of income, or meet the lender's DTI or PTI standards.
  4. Limited credit history – If you just started using credit and don’t have a cosigner, some lenders may turn you down due to a lack of credit history. It's best if you get the ball rolling and build up a credit history before you apply for a car loan on your own. Lenders are more willing to finance someone with at least a year of credit history under their belt.

Steps to Take after You’ve been Turned Down for a Car Loan

If you applied for a car loan with a traditional lender and were turned down, you can fill out our request form so we can connect you to a special finance dealer that can help you get the financing you need. Once you complete our form, you then need to reevaluate your situation by determining why you were turned down.

If it was because of your credit, you can take steps toward improving your credit by:

  • Checking that the information on your credit reports is correct, and disputing any errors
  • Paying your current bills on time
  • Applying for other types of credit (such as credit cards) and using them responsibly
  • Paying off or at least paying down your current debt

If money was the deciding factor, you can improve your current financial situation by:

  • Setting money aside each month for a larger down payment
  • Creating a budget for a future auto loan
  • Applying for a pre-approval from your bank or credit union
  • Having a cosigner that meets the credit and income requirements

Your credit won’t improve overnight, and your income situation most likely won’t change in a day, but you can take extra steps to increase your chances of approval. All of these things take time and planning, so take a deep breath, and take things day by day.

Turned Down for a Car Loan? We Want to Help

CarsDirect can help you get approved for a car loan by matching you to a dealership that has the lenders available to help. The nationwide network of dealers we work with know how to handle unique credit situations, and are ready to help. Get started today by filling out our simple and free auto loan request form.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

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