Nothing sucks the air out of your tires as quickly as finding out you were not approved for an auto loan. We know it can feel deflating, but it happens more often than you think and it doesn’t mean you’re out of options. A good starting point is to identify the reason you weren’t approved which can be as simple as a mistake in the paperwork. Based on your findings, you can proceed to take the right course of action to get approved for the car you need.

Identify The Reason You Weren't Approved

Upset couple filling out car loan
Buying a car can bury you in paperwork and lead to errors in your loan application.

The first step in reversing your car loan destiny is to find out why you weren't approved. There are some obvious and less obvious reasons for the rejection. Once you identify the one that applies to you, you can begin to correct the problem. Do any of these apply to your situation?

1. A Low Credit Score

Your credit score is not the only factor considered for car loan approval but your credit history does have a big impact on your ability to get a loan and the interest rate the lender is willing to offer you. If you have a history of missing payments, especially car payments, you were most likely not approved because your score falls into the 'fair' or 'bad' credit categories. 

Find a Car Loan with Bad Credit

2. Insufficient Credit

Your chance of car loan approval can suffer if you don’t have a substantial credit history. This is a very common roadblock for young car buyers who are making a large purchase for the first time and haven't had the chance to build up their credit history. Despite the fact that the borrower hasn't done anything explicitly wrong, the lender doesn't have enough confidence that the loan will be paid back based on past payment history.

credit report dispute
Errors can sneak into your credit report causing you to fall into a lower credit category.

3. Loan Application or Credit Report Errors

Errors on your application or credit report are a less obvious roadblock for approval that happen more often than you think. Buying a car is a long process that involves a lot of paperwork. By the end of it, the car shopper is likely fatigued and can make a mistake in the car loan application. Alternatively, credit reports don't always contain accurate information and can cause your score to drop without good reason.

4. Your Loan Amount

If you request a larger loan than your income warrants, your application may be rejected. Lenders will also consider how much the car you're buying is worth compared to how much you're requesting. If you're asking for $25,000 to cover the vehicle cost plus insurance, tax, and warranty but the car is only valued at $20,000 the loan-to-value ratio may be too high and risky for the lender. 

5. No Steady Income

Your income is an important part of the car loan approval process especially if your credit score doesn't fall into the 'excellent' category. Lenders look for a steady income to gain confidence in the borrower's ability to make payments. Maybe you're a part-time or freelance employee whose income fluctuates which can raise a red flag. 

Take the Necessary Steps for Approval

Car loan approval
A cosigner with good credit can make that new car a reality.

Depending on the reason you identified for getting rejected, you can plan to take one or more of the following routes to get your car loan approved.

1. Find a Cosigner

A cosigner can help you overcome the obstacles of having a low credit score or not having enough credit built up. If you have a close friend or relative with good credit who is willing to cosign your car loan, you will be much more likely to get approved. Just remember that they'll be on the hook if you don't make your car payments. Your missed payments can cause both a financial loss and a lower credit score for your cosigner.

Saving for a new car

2. Save For a Down Payment

If you tried to get a car loan without a down payment and were denied in the past, you should consider saving up to have anywhere from 15-20% of your car's price ready to put down. If you're looking to buy a $10,000 used car, for example, plan on saving up a minimum of $1,500. While it may seem like a lot of money up front, it gives the lender confidence in your ability to pay back the loan and can help you get financing for the rest of the vehicle's cost.

3. Check for Errors in Your Credit Report

Errors can creep into your credit report without your knowledge so it's important to check your report for any mistakes and get them corrected right away. This can bump you up into the next best credit category and make the difference between loan rejection and approval. 

Woman buying a used car
Getting your loan approved can come down to the price of the car in question.

4. Buy a Less Expensive Car

We realize we won't win many friends with this solution and we understand it can be a letdown to pass up the car you really want in favor of something more affordable. If you weren't approved due to a high loan-to-value ratio, you'll likely find yourself spinning your wheels trying to finance the same car elsewhere. By choosing a more affordable route and buying a used car instead of new or going down a trim level or two, you improve your chances of being approved. An affordable car is better than no car at all, agreed?

5. Try a Different Lender

If you've had no luck getting a car loan from your bank, you can explore applying at a credit union or specialized lending company that can accommodate distressed credit. While a bank will usually offer a lower interest rate, there isn't as much flexibility when it comes to accepting borrowers with low credit scores.

At Web2Carz, we partner with lenders nationwide that help car shoppers with a wide range of credit scores finance their vehicles. You may be concerned that multiple credit inquiries will ding your score, but as long as you keep your loan applications to a 45-day period, you can shop around for financing without noticeably harming your credit. 

Apply for Your Auto Loan Today