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It’s tough to get around these days without a car, especially if you live in the suburbs or in rural parts. Unless you live right on a bus or subway route, having a set of wheels is almost mandatory.

But cars are so expensive these days. That’s why car loans are offered, providing consumers with a way to be able to afford an expensive vehicle without having to come up with the funds all at once.

But what happens if you apply for a car loan and you’re rejected? What are you to do now?

Let’s discuss some of your options to help you get your hands on a car loan to finance a vehicle that will get you where you need to go.


Key Points

  • Many factors can play a role in a rejected car loan application, such as bad or no credit, excessive debt, or errors on the application.
  • The first step after being turned down for a car loan is to reach out to the lender to find out the specific reasons why your loan was rejected.
  • Depending on why your application was denied, take time to improve these areas of concern to increase your chances of loan approval the next time around.

Why Was I Denied A Car Loan With Good Credit?

Despite having good credit, there’s still a chance that you may be turned down for a car loan. Here are a few reasons why:

  • High Debt-to-Income Ratio: If you’re carrying a high debt load relative to your income, your lender may see you as a risky borrower and may reject your loan application as a result.
  • Insufficient Income: Lenders typically require stable and adequate income to ensure you can cover your loan payments. If your income is a little too low as per your lender’s requirements, you risk being denied a loan.
  • Unstable Employment: Even if your income is sufficient, your employment status may be considered unstable. In this case, there’s a higher chance that you could lose your job, which would impact your ability to repay your loan.
  • High Loan-To-Value Ratio: Perhaps the loan amount you’re requesting is very high compared to the value of the vehicle. This increases the lender’s risk, who may then be more hesitant to approve your loan application.
  • Errors On Your Application: If your loan application is incomplete or inaccurate, you may be turned down for financing.

Reasons Your Car Loan Was Rejected

There could be any number of reasons why you were turned down for a car loan, including the following:

You Have Bad Or No Credit 

Lenders want to minimize their risk when they supply loans to borrowers. One way to tell that a person will be a responsible borrower is by checking their credit score.

If you have no credit, your lender will have nothing to go on. Similarly, a low credit score likely means you’ve missed payments on bills in the past, or have maybe even defaulted on your loans. If that’s the case, your low credit score could deter you from getting approved for a car loan.

How To Fix It? 

If poor credit was the culprit behind your rejected car loan application, take steps to improve it. You can help improve your credit score by paying your bills on time and making more than your minimum monthly credit card payments. Keeping your credit card spending around 30% of your credit limit is also recommended. 

Learn more: How To Improve Your Credit Scores

Your Income Is Inadequate Or Sporadic 

A regular, stable, steady income is a requirement for car loans and any other type of loan for that matter. You need to make sure that you’re bringing in enough money every month to be able to comfortably cover your car loan payments. Otherwise, you’ll have a tough time trying to convince a lender to approve you for a car loan.

How To Fix It?

While easier said than done, try increasing your income before applying for a car loan. This will free up more money to dedicate to car loan payments, which can reduce the lender’s risk and improve your odds of loan approval. Some ideas to help you get started include freelancing your services, becoming an Uber driver, or delivering groceries with Instacart.

Most lenders also want to see that you have a stable source of income. Ensure you’ve been employed with the same lender for 3-6 months before applying for a car loan.

Your Debt-To-Income Ratio Is Too High

As mentioned earlier, your debt-to-income ratio plays a role in loan approval. Even with good credit, a high ratio can sabotage your efforts to get auto financing. 

All your debts — including credit cards, personal loans, rent, and other debts — can affect your approval, even if you earn a high income. While a strong income is certainly helpful, it can be overshadowed by a high debt load, which can lead to loan rejection. 

How To Fix It?

If your current debt load is preventing you from getting approved for a car loan, take some time to pay it down so that more of your income can be freed up and dedicated to your car loan payments.

You Supplied Incomplete Or Inaccurate Information 

When you apply for a car loan, you’ll be asked to submit certain information, including your employment status, income statements, bank statement, as well as your personal information (such as your full name, age, address, etc).

If any of that information is wrong or incomplete, the process will hit a snag, and you may find delays obtaining a loan until all your information is supplied correctly and in full.

How To Fix It?

Be Fully Ready The Next Time You Apply. Be sure to collect every single piece of information required, and ensure that it’s all correct and complete. Make sure you meet the lender’s requirements to ensure a stronger loan application.

The Loan Amount Requested Is Too High 

Maybe you’d be able to get approved for a certain loan amount, but the amount you’re requesting is too high based on your current financial health. 

How To Fix It?

If that’s the case, you may have to shop around for a cheaper vehicle so you can get approved for a lower amount. Or, consider making a bigger down payment to reduce the amount you need to borrow. It may be easier to secure a smaller loan since it reduces the lender’s risk as well as yours. 

Why Was My Car Loan Denied After Pre-Approval?

Getting pre-approved for a car loan is a good step to take, as it shows you how much you can afford to spend on a car. However, getting pre-approved is not a guarantee of final loan approval. There’s still a chance that you may be turned down for a car loan if important factors change before your car loan is finalized. 

Reasons for being turned down for a car loan after pre-approval include the following:

  • Drop In Credit: If your credit score dips, the lender may reconsider their decision about your loan approval.
  • Change In Employment Status: Switching jobs to a less stable role can negatively affect your loan approval.
  • Decrease In Income: A dip in your income will impact your ability to repay your loan, which may cause your lender to think twice about approving your loan application.
  • New Debt: Taking on new debt will increase your debt-to-income ratio, which can lead to loan rejection even after you’ve been pre-approved.

What Do I Do If My Car Loan Application Is Rejected?

If you’ve been denied a car loan, there are certain things you can and should do before you try again.

Find Out Why You Were Turned Down

The first thing you should do if you are turned down for a car loan is to find out why. Call your lender and ask. The answers you get will help you make the necessary amendments needed to make sure that your chances of loan approval the next time around are higher.

It could have been your credit score, your income, or your debt load. Whatever the reason, knowing what it is can give you a chance to improve that area before applying for a loan in the future.

Find Out What The Exact Loan Requirements Are 

Before you submit another car loan application, find out what the lender’s exact requirements are to secure a loan. This will give you an idea of whether or not you’d be successful the next time you apply. It will also give you a chance to work towards meeting these criteria before applying to boost your odds of loan approval.

What Credit Score Do You Need For A Car Loan?
Generally speaking, you’ll need a credit score of at least 660 (considered “good” credit) to get approved for a car loan with a traditional lender. That said, there are lenders available who work with bad credit borrowers to help them secure auto financing.

Get A Cosigner 

Find someone with good credit who you can trust to back you up. Having someone cosign on your loan application can help you boost the odds of approval. Just make sure that the cosigner understands that they will have to step in and take over your loan payments in the event that you default.

Use An Alternative Lender 

If you’re having trouble meeting a traditional bank’s strict loan criteria, consider applying with an alternative lender. If you have bad credit, for instance, there are bad credit lenders available that can help you get the money you need to make a car purchase.

These lenders will focus more on your income, deposit amount, and most recent payment activity instead of your credit score. As such, you may have a better chance of landing a car loan with these types of lenders, and Loans Canada can help put you in touch with them.

How Do I Find The Right Lender?
Using the right lender is key, especially if you’re having trouble getting a car loan the traditional way. Use an online loan comparison platform like Loans Canada to help you quickly compare lenders and their offers and find the best deal on a car loan you can qualify for.

Final Thoughts

Dealing with a rejected car loan application can be discouraging, but it’s not the end of the road. Find out why you were turned down, improve your financial profile, and look into alternative lenders or financing options to boost your chances of approval. Get in touch with Loans Canada today and we’ll connect you with a lender who works with borrowers with your exact type of financial situation!


Car Loan FAQs

How long should I wait before I apply for a car loan again?

Most lenders don’t typically require a waiting period before borrowers can try again, though some do. The amount of time that you wait before you try again will depend on why you were turned down. For instance, if it’s because of your credit score, you should wait until your score has increased (through any one of the efforts mentioned above) before applying again.

Should I choose dealer financing or find an outside lender?

Choosing between in-house dealer financing and an outside lender depends on factors such as interest rates, loan terms, and convenience. Financing from dealerships is convenient, and many dealers often offer promotional rates. On the other hand, outside lenders, like banks, may provide more competitive rates and flexible terms. If you have bad credit, alternative lenders may be a better option. Comparing offers from each source can help you find the best deal.

Besides my dealer or bank, what other car loan options are there?

While banks and car dealers are obvious sources for car loans, there are other options available. Especially if you were rejected, you may want to look elsewhere the next time around. There are plenty of reputable alternative and online lenders available who make it easier to get approved for a car loan, and Loans Canada can help you with this.

Can a denied car loan affect my credit score?

A lender’s decision to reject your car loan application will not appear on your credit report, so your credit score shouldn’t be affected. However, when a lender performs a credit check when you apply for a car loan, your credit score will be temporarily affected. That said, it should bounce back, as long as you continue to make sound financial decisions.

Can I be denied a car loan with good credit?

Yes, you can be denied a car loan even with good credit. Other factors are involved in the lender’s decision, including your income and debt levels. So, if you have good credit but a weak income and high debt levels, you may still be turned own for a car loan.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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