Why was my car loan application denied?

If your application for a car loan was denied, it’s likely because you applied for more than you could afford or because your credit score wasn’t high enough. But those aren’t the only reasons why car loans get rejected. Take the advice in this article as a great opportunity to review your financial history to see what can be improved.

4 common reasons why car loans are denied

There are several reasons why your car loan application might have been denied. Let’s take a look at the 4 most common ones.

1. Simple mistakes

You might be surprised how many car loan applications are denied based on an error or technicality. You might have been rejected because you didn’t:

• Fill out all the required sections
• Provide sufficient details regarding your income, identity, employment and the purposes of the loan

• How to avoid it

Read over your application before submitting it to make sure there is no information missing and that there are no grammatical or spelling errors. Consider having someone else take a look at it too — they might notice mistakes you missed. An example spelling error: “I owe [with an “e”] $20,000 in securities” means the opposite of “I own [with an “n”] $20,000 in securities.” Carefully proofreading your application can ensure you don’t make these kinds of simple mistakes.

2. Credit score and credit history

In general, car loan providers tend to consider a credit score of 630 to be the minimum cutoff for approval – meaning any score lower than that could get you denied. Your credit score gives car loan lenders a strong indication of how likely you are to either repay or default on a car loan. Your score represents your credit history, which includes details like past bankruptcies, outstanding debts, overdue accounts and previous credit inquiries. A higher credit score means a lower risk for lenders.

The length of your credit history also matters to car loan providers. So your car loan application could be denied if you’ve only had credit in your name for short amount of time before applying.

• How to avoid it

Check your credit score before applying for a car loan to better understand how much of a risk you will seem to lenders. If your score is too low to qualify, consider taking steps to improve your credit first.

3. Income and employment history

Your income and employment are two of the main factors lenders consider when reviewing your loan. If you’re not earning enough, only just started a new job or have an unstable employment situation, you’re more likely to be considered a high risk, so your car loan application could be denied.

• How to avoid it

If income is an issue, applying for a used car loan may give you a higher chance of success. If you’re self-employed and can’t provide all the relevant income documents, consider applying with a cosigner or providing supplemental documents like a financial record documented by a CPA (Chartered Public Accountant) or Notices of Assessment from the past couple of tax years. Freelancers might try getting a steady part-time gig on the books to show you have at least a reliable base income.

4. Other loans or outstanding debt

In addition to your income, lenders like to take a look at your debt-to-income ratio (DTI). If you have a DTI higher than 43%, you may fond yourself with a denied car loan. You can use our DTI calculator to make sure yours isn’t over the line.

• How to avoid it

Is your DTI over 43%? You might want to consider consolidating your debt before applying for another loan. This involves combining several smaller debts into one large debt, simplifying payments and possibly getting a better interest rate in the process.

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What happens if my car loan is denied after the purchase?

Unfortunately, some dealerships will allow you to purchase a car and drive off the lot even before your car loan has been fully approved. If they later find out that your car loan was denied, you could get a call from the dealership saying you either need to return the car or agree to pay a higher monthly payment in order to keep it. If you find yourself in this situation you may be the victim of “yo-yo financing” (also known as spot delivery scam). In that case, the dealer might claim that it’s already sold or traded in your car, or threaten it will call the police if you don’t return the car immediately.

If this happens to you, the first thing to do is keep your cool. It’s easy to panic and rush into signing a loan contract with a much higher interest rate. That’s what the dealership is hoping you’ll do. Instead, you should carefully review any documents you received looking for words like “conditional sale.” If it the sale was conditional, you can essentially unwind the sale and return the car.

You should also ask for a letter of denial from the financing company the dealer works with. If they can’t provide one, then there’s a good chance that they’re up to something sketchy.

How to respond to a car loan denial scam

Yo-yo scams are illegal. If you’re a victim, report the dealership to your local police, the Canadian Anti-Fraud Centre (CAFC) and your province’s auto dealer licensing body. You can also contact a lawyer to help get the situation resolved. Below is a list of provincial dealership licensing organizations you can contact:

Province	Auto Sales Regulatory Body
Alberta	Alberta Motor Vehicle Industry Council (AMVIC)
British Columbia	Vehicle Sales Authority (VSA)
Manitoba	Manitoba Motor Dealers Association (MMDA) – New Car Dealerships Manitoba Used Car Dealers Associatin (MUCDA) – Used Car Dealerships
New Brunswick	Department of Public Safety – Motor Vehicle Branch
Newfoundland & Labrador	Government of Newfoundland and Labrador
Nova Scotia	Government of Nova Scotia
Ontario	Ontario Motor Vehicle Industry Council (OMVIC)
Prince Edward Island	Government of Prince Edward Island
Quebec	Société de l’assurance automobile du Québec (SAAQ)
Saskatchewan	Financial and Consumer Affairs Authority of Saskatchewan (FCAA)

How can I find out why my car loan was denied?

You can typically find out why your car loan application was denied by contacting your lender. If you applied online, you can often find out simply by logging into the account you used to submit your application. Otherwise, reach out over the phone to the customer service department of your lender to find out how to get this information.

How do I avoid getting denied for a car loan again?

In order to avoid being denied for a car loan make sure you meet your lender’s requirements before you apply. If your application is declined, ask the lender the reason. They can inform you of any weak points in your application that you might have missed, and you can take the appropriate steps to resolve these issues for next time.

If there are any nonnegotiable eligibility requirements, such as a minimum income threshold or specific documentation that needs to be submitted, it’s important that you meet these requirements. Otherwise, you’re pretty much guaranteeing a rejection.

• Check the credit requirements. Car loan lenders will sometimes require that you have good credit, which usually means having no negative listings on your file. Check your credit report before applying and make sure it meets the lender’s criteria.
• Check the income and employment requirements. If you’re unable to meet one lender’s specific income or employment requirements, find a different car loan provider that isn’t as strict.
• Pay off any outstanding loans. It’s a good idea to pay off your debts before taking on more. You’re more likely to have a loan approved if you can prove that you’re able to repay the money you borrow in a timely manner.

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What do I do if my car loan is denied?

If your car loan application is rejected, there are three simple steps to take before you apply again:

1. Ask why. Lenders typically explain why your loan was declined if you ask. This can give you an idea of what to do differently next time, and whether the issue is a problem with your finances or the lenders strict requirements.
2. Approach the lender before you apply. Before making a formal application, contact the customer service team at the lender you’re considering. Get a sense of loan requirements, ask questions and try to find out whether or not your application will succeed.
3. Be prepared for next time. Next time, be ready. Make sure you’ve gathered all the information you need and ensure that your application is well-suited to that lender’s terms and conditions.

Other financing options if you’ve been denied a car loan

Getting denied for a car loan doesn’t have to be the end of your car-buying story. If you’re having trouble getting a car loan because you’re a high-risk applicant, there are other financing options that could potentially get you behind the wheel of your new ride, including:

• Bad credit car loans. If your car loan application was denied because you don’t meet the lender’s credit score requirements, consider applying with a lender that specializes in bad credit car loans. These lenders are more lenient when it comes to credit history requirements, so you have a better chance of getting approved for a car loan even with bad credit. Read our full guide to getting car loan with bad credit here.
• Getting a cosigner. Car loan lenders will be less likely to deny your application if they know they can get their money if you default on the loan. That’s where a cosigner comes in. Since lenders can get repayments from the cosigner in the event that you can’t pay, the car loan is less risky for the lenders so they’ll be more likely to lend you the money for a car.
• Personal loans. Personal loans from a bank or online lender can also be used to purchase a car. It’s worth checking into this option if you’ve been denied a car loan. Read our full guide to buying a car with a personal loan here.

Bottom line

A loan rejection isn’t the end of the world. It gives you a chance to figure out what you’ve done wrong and improve for next time. Take some time to compare your auto loan options so you can tackle your next application with confidence.

Frequently asked questions about car loans being denied

• What if I'm denied a car loan even with a cosigner?

  While having a cosigner is usually a good way to lock in a car loan, it’s possible to still get rejected even if you have a cosigner on the loan. Being denied with a cosigner can happen if you or your cosigner have some major red flags in your credit history, like defaulted loans, collections or too many recent inquiries. In that case, your best bet is to apply with a car loan lender that specializes in bad credit.

• How long should I wait before applying again for a car loan after being denied?

  Some lenders may have a specific waiting period between loan applications, but most lenders usually don’t. How long you should wait depends on the reasons you were rejected. If you were denied because of bad credit, wait to apply until after you improve your score.

  If your application was rejected because your debt-to-income ratio was too high, paying off your debts is a good way to make yourself appear less risky to lenders.

• Can I still buy a car at a dealership if the dealer rejected my loan application?

  Dealers follow certain criteria when it comes to who they’ll lend to. If you get rejected for a car loan at a dealership, you can try reapplying with a cosigner. Your other would be to approach the dealer with an outside source of financing, like getting a car loan from a reputable online lender instead. This cuts out the dealer entirely.

• Are there any alternative ways to apply for a car loan?

  You don’t always have to go to a bank or car dealer to get a loan, especially if you’ve already been rejected. An online lender may be able to finance your loan, and there are always car loan brokers that can connect you with a lender if you’re having trouble finding one yourself.

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