Five Reasons Why Your Car Loan Might Be Getting Rejected
Owing a car is still a dream for most people despite being necessary to commute around with ease. One reason most people think twice before buying a vehicle is the fear of having their loan request shot down. Auto loans are expensive. It gets almost unaffordable when you have a bad credit score and need to borrow from a private vendor.
That is because they charge a higher interest rate and might increase your financial burden further! Sadly, in most cases, people are unaware of the reasons for car loan rejection in the first place. If you are trying to figure out the reason, too, here’s why it could be!
Mistakes in the form
This one can happen to anyone and is easy to fix. Go through the loan application form again and fill out the details correctly. Ensure you fill in all the required sections, provide all the supporting documents, and ensure all the information is up to date before submitting your application. You could also try to have it evaluated by a third-person to ensure there are no errors before submitting the loan application to the authorities.
Bad credit score
This one is a no brainer. Your credit score or your creditworthiness is the strongest factor that would determine the loan issuing process. If you regularly pay out your credit card bills, loans, and other EMIs, your credit report would have an impressive score. While a good credit score is something around 670 to 739, you might get a loan even if it is slightly lesser than that. However, interest rates might be slightly higher.
If your credit score stands something between 300 to 579, it shows your creditworthiness as low, and you cannot find a lender with ease. One way to improve your credit score is to clear your dues, watch your borrowings, and improve your financial standing.
A higher credit score means fewer risks for the lender, so the interest rate would be lower. And when your credit score is bad, the risk is higher, so is the interest rate!
Based on your credit score, employment history, and financial stability, you are eligible for certain loans. However, if you already have reached the maximum amount that a lender can provide you with, you cannot borrow money again. If you are battling a car loan rejection, it could be because of your other loans.
So, calculate how much more do you owe and how long before you completely pay it out. You could also use a debt-to-income ratio calculator available online to determine if you would be eligible for a loan. If your debt to income ratio or DTI is less than 43% getting a loan might be a tough nut to crack!
Credit Card Debts
If you have huge credit card bills that you are overdue, it will impact your creditworthiness. While your car is an asset, they could recover if you do not pay your car loans, that’s a tiresome process. The lender would rather cut the chase by not lending you money in the first place. So, to avoid such rejection, you could start by clearing out your credit card dues, paying your bills on time, and focus on building your creditworthiness.
If you have been switching too many jobs recently, have gig-based employment, or have too many gaps in your employment, it could lead to loan rejection. This is because, with an unsteady income, it is going to be difficult or impossible to repay the money you borrowed. And this means you fall under the high-risk group in terms of loan repayments, which the lender would try to avoid.
So, if you have an issue with your employment or have an unsteady income source, you could apply for a used car loan. You are more likely to get that with ease. And once you own this used car, payout the loan on time, and build your creditworthiness, your next auto loan would come to you with ease!
If you are trying to figure out a reason for your recent car loan rejection, try to explore if any of these causes could be behind it. Once you know the reason, work on fixing it. And soon, you will be driving your dream vehicle if you avoid these errors.
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