Why was my Car Loan Application declined?

If you've been declined a car loan, it's unlikely you will get a satisfactory answer as to why you were declined. Lenders try to avoid explaining the specific reasons as they want to keep their lending criteria a secret.

If you can't get the reason you were declined, by looking at the basic variables, you could discover why you may have been declined. If you suspect you know why, you can do something about it.

Lenders make assumptions about your financial habits. This is based upon on the behaviour of previous applicants. This allows the lender to make conclusions about your application and gives the lender an idea about whether you may be a good client and repay the loan.

Lenders check to see if you have:

  • An income that allows you enough money to pay back the loan.
  • A good credit history.
  • Stable employment.
  • Stable living arrangements.

If your car loan application has been rejected, it is may have failed in one of these areas.

The Main Lending Criteria

Income

Your lender will decide if you will be able to repay the loan according to their specific formula. The lender will not allow the repayments to rise above a certain level of your income. Lenders also take into consideration any other debts you have, such as other loans and credit cards. If the repayments are over a certain percentage of your take home pay, you will be refused a loan.

Use our car loan calculator to estimate what the level of repayments would be for your situation.

Credit History

Everyone has a Credit History. Lenders will always check your credit history by looking at your credit file before approving your loan.

Your credit file contains the details of your credit history. This includes details of:

  • Previous loan applications for the last 5 years.
  • Current loans.
  • Overdue accounts - also known as defaults.
  • Current and previous employers.

Car loan applications leave a notation in your credit file and if you make multiple applications, this can be seen as an indicator of financial stress. You should keep loan applications to a minimum. Also remember that some lenders will refuse your application no matter how small the overdue amount is.

Employment

Lenders want to know if you have steady employment. If you changes jobs frequently or are still in a probation period, you may give the impression of lacking reliability.

Residential Situation

Lenders will often consider your residential situation. Moving around on a regular basis is another potential indicator of unreliability.

What to do if your loan application has been declined

Look at your credit file

Check your credit file before you make a car loan application and ensure entries are accurate. Overdue accounts should be rectified immediately.

Checking your credit file is free with Veda Advantage.

Have patience

If you are still within a probation period at work, try waiting until your probation period ends. Some lenders will not consider your loan application until you are a permanent fulltime employee.

Consider a secured car loan

You lender will use your car as security. Secured loans will often offer lower interest rates.

Don't despair

Before applying again for another loan, you will have time to:

  • Increase your savings.
  • Create a savings track record to show the lender.
  • You will have a larger deposit.
  • You won't need to borrow as much.

Don't be too troubled if you are declined a car loan. You will have opportunity to apply again soon.

To get ready for your next application consider:

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