If you've been turned down for a car loan, there are a few reasons why your application may have been denied. You are, of course, entitled to receive a letter that explains the reason(s) for the denial. But, in the mean time, you can get a jump start on your action plan by exploring the probable explanations.
There's a good chance that your credit is to blame. However, it could also be your reported income or possibly even an error on your application.
Being Turned Down for a Car Loan because of Your Credit
When lenders say "no" to car loan applicants, it is often due to poor credit or no credit. Lenders check your credit report in order to gauge the chances you will pay back your loan. So, if you have a history of late payments, repossession or bankruptcy, the lender may see you as a risky borrower and deny your request.
Or, if you haven't used credit very much or at all, your credit file will be thin or nonexistent. In this case, the lender literally has nothing to go on when assessing your risk as a borrower. So, even though you don't have bad credit, your no credit status can prevent you from getting approved for a car loan.
If you're unsure about the state of your credit, you should request copies of your credit reports from the three primary reporting bureaus. You are, after all, entitled to receive one complimentary report from each of these agencies every 12 months. You can visit AnnualCreditReport.com to obtain reports from TransUnion, Equifax and Experian.
Once you've verified that your credit is the problem, there are a few things you can do. If the issue is damaged credit, you can start the credit repair process. This involves getting current with all of your obligations and paying down high credit card balances. You can also apply for a bad credit loan through a dealer that has experience in subprime financing. This way, you can get the car you need and start to improve your credit by making timely payments on your loan.
If, on the other hand, you need to build credit from scratch, opening a secured credit card is a good option. You can also build good credit with a subprime auto loan.
How Your Income can Prevent You from Getting a Car Loan
If you were already aware of having a low credit score and were turned down for a bad credit car loan, you may have failed to provide proof of a qualifying income. With special finance lenders, your ability to pay back the loan is the most important factor in the approval process. Yes, these lenders are willing to work with bad credit buyers, but they need to know that you can make your car payments.
In order to ensure that an applicant with credit issues is able to pay back a loan, special finance lenders normally have minimum income requirements. Usually, they'll want proof that you earn at least $1,500-$1,800 (pre-tax) per month. Otherwise, it is unlikely that a lender will be willing to approve you for an auto loan.
If you are a server in a restaurant, a bartender, or anyone else who relies on gratuities as an income source, you should be careful about reporting your tips. Not only is it illegal to withhold income information to avoid paying taxes, but it can also hurt your ability to get financed.
For example, you may earn $2,000 a month as a bartender, but if you're only reporting an income of $1,400, you probably won't be approved for a bad credit car loan. So, in the future, make sure that you're reporting every cent that you earn while on the clock.
Being Turned Down for a Car Loan Because of Application Mistakes
Maybe an application error has caused you to be denied. It's possible that you may have filled in an incorrect income amount or simply neglected to include vital information.
Also, if you've applied for a bad credit auto loan, certain documents will be required. These include your driver's license, recent paycheck stubs, a utility bill addressed to you and a list of personal references. If you can't produce any of these items, you won't be able to complete the delivery process.
If there was an application error, this means that the problem will be easy to fix. The next time you're able to apply for a loan, make sure to review your application for accuracy. It will also be helpful to create a document checklist so that nothing will be forgotten.
Or, you can simply contact Drivers Lane. We'll make sure that you're fully prepared for your car buying experience. This is just one part of our free and easy service that we offer to consumers with credit issues.
Financing Assistance for Second Chance Car Loans
Here at Drivers Lane, we help bad credit car buyers, and we've been doing this for nearly two decades. We can match you with a local dealership that can work with unique credit situations. In fact, you may even be able to purchase your vehicle with little or no money down.
We'll work hard to show you that second chances can happen. All you have to do is fill out our simple and secure auto loan request to get started today.