Denied an auto loan? Here’s everything you need to know

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Receiving an auto loan denial can be tough — especially because for many drivers a loan is the only practical way to get behind the wheel. If this is you, now is the time to figure out why this occurred and take the steps necessary to avoid it in the future.  

Why was I denied a car loan? 

There are many factors that affect your potential to receive an auto loan. 

  • Poor credit score. Most lenders have a minimum credit score as part of their eligibility criteria to get a loan. If your credit score is lower than this requirement, you will immediately be denied. A score of 620 or lower is less than ideal when it comes to getting a loan.  
  • No credit history. If you do not have any credit built up, lenders will not be able to gauge your ability to make future auto loan payments and can use it as a reason to deny your application.  
  • Errors in the application. You can be denied a loan due to simple errors in the application itself. If you miss a section or note information incorrectly lenders may reject your application. 
  • Debt. If you have a lot of debt gathered from other loans or credit cards, your DTI ratio — or debt-to-income ratio — will be higher. A DTI ratio of 50 percent or higher is considered a red flag. 

What to do if you were denied an auto loan  

Just because you have been denied an auto loan does not mean that getting one in the future is out of the question. Take a few steps before applying again to up your chances of being able to drive off the lot in your new ride.  

Contact lender 

The first step after being denied an auto loan is to reach out to the lender. Find out the specific reason that your application was denied. If it was something as simple as an application error, you can easily make adjustments and reapply. It is important that you request this information within 60 days of your application, otherwise, it will fall outside of the Equal Credit Opportunity Act.  

Improve credit score  

As mentioned earlier, your credit score serves as a vital measurement for lenders when determining whether to accept or deny your application. Take the time to improve your credit score through checking your credit report, paying on time and lowering your credit utilization rate before reapplying to an auto loan after denial. 

Look for poor credit lenders  

If the reason for your application denial was due to a poor credit score, a poor credit lender might be a way to get you behind the wheel sooner rather than later. These lenders market specifically to drivers with low credit scores. But it is important to compare options because these lenders tend to carry much higher interest rates that could cost you thousands in the long term.  

Minimize your debt  

Lowering your debt is key in attracting future lenders. Primarily it is important to avoid gathering any future debt through the process of trying to decrease it. It is recommended to take the time to review your budget and try to remove any unnecessary expenses before reapplying. Consolidation of debt is also an excellent way to minimize your debt.  

Other options 

Options don’t stop at your ability to quickly improve your credit and lower your debt — though both can certainly help.

“Buy here pay here” dealers 

A BHPH dealership is not perfect but can be a good option if you have a low credit score and are desperate for a vehicle. In this scenario, the dealer both sells and finances the vehicles on their lot. Approval standards for credit tend to be lower and the process is much quicker than traditional lending. But it is important to consider that interest rates are very high and there are fewer vehicles available.  

Co-signed auto loan 

A co-signed auto loan on the other hand is when you — the borrower — still carry the full responsibility of the vehicle payments, except in the case that you can’t. Both your credit history and your co-signer’s credit history will be factored in during the application process, which may lead to an approval and more favorable interest rates and terms.  

Joint auto loans  

A joint auto loan is when you and one other person — typically a life partner or spouse — share the car loan in full. This can lead to a lower interest rate as well as the ability to take on a larger loan because of the added income.  

The bottom line 

Do not get discouraged after an initial denial from an auto lender but rather step back and try and find the reason for denial. As with anything in the realm of finance, preparedness is key. When the next time comes around for you to apply, go through the above steps to ensure your application is going to be perfect in the eyes of the potential lender.  

Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Rhys Subitch