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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 of the city. 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.

Thinking about purchasing a car from a private seller? Check out your financing options here.

Common Reasons Why Car Loan Applications Are Rejected

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

You have bad credit – Lenders want to make sure their risk is limited when they supply loans to borrows. One way to tell that a person will be a responsible borrower is by checking their credit score.

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.

You have no credit – In order for lenders to be able to make an informed decision about whether or not to approve your loan application, they’ll want to see what your credit history is like. If you have no credit, your lender will have nothing to go on.

Building credit requires a certain amount of time and effort. You need to make regular payments toward loans or credit lines. If you haven’t started building credit yet, it could be tough for you to secure a car loan.

Learn how to improve your credit this year, take a look at this article.

Your income is sporadic – 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.

You supplied incomplete, inaccurate, or incorrect 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.

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 on your current financial health. If that’s the case, you may have to shop around for a cheaper vehicle so you can get approved for a lower amount.

Auto Financing 101
For a detailed look at your auto financing options, check out this infographic.

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

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

Find out why – The first thing you should do if you are turned down for a car loan is to find out the reason 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 help you be more informed the next time you apply.

Find out what the exact loan requirements are – Before you submit another car loan application, call the lender you’re considering working with and find out exactly what the 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.

Be fully ready the next time you apply – Be sure to collect every single piece of information required, and ensure that it is all correct and complete.

Want to know how to get a car after repossession? Click here to find out.

How to Recover From a Denied Car Loan Application

If your lender denies your loan application, don’t fret. While this is certainly a discouraging and annoying setback, you may have other avenues to try to obtain the funds needed to finance your vehicle purchase.

If any component of your financial profile is what’s causing the rejection, take the time to make the necessary improvements.

If your credit score is what’s holding you back, take steps to improve it, such as:

  • Make all bill payments on time
  • Don’t apply for any other new loans or credit cards
  • Make more than your minimum monthly credit card payments
  • Don’t max out your credit cards

If your income isn’t adequate enough, consider getting a side job or asking for a raise or more hours to bring in more money to increase your chances of loan approval.

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

Alternative Car Loan Options

If the conventional loan route is not working out for you, there are other alternatives that you can consider to help you secure a car loan.

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 (click here to learn more about getting a loan with a cosigner). 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.

Seek out an alternative/online lender – There are alternative lenders aside from conventional ones that have different lending criteria. 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.

Wait to improve your financial situation – If time is on your side, then take some time to make the necessary improvements in your financial life. Whether you need to improve your credit score, beef up your income, or reduce your debt load, working on any one of these things can help increase your chances of getting approved for a car loan in the near future.

New vs. Used Cars

Trying to decide between a new car and a used car? Click here.

Car Loan FAQs

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

Most lenders don’t typically have a waiting period required 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?

It might be best to go with an outside lender, as dealers tend to follow certain lending criteria in terms of who they are willing to lend to. This way, you can deal directly with the lender without getting the dealer involved in the financing aspect.

Is 0% financing ever really a good idea? Find out here.  

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

While the bank or car dealer 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.

Looking to Apply For a Car Loan?

If you’re looking to get approved for a car loan but haven’t been having much luck in this department, Loans Canada is here to help. Get in touch with us today and we’ll connect you with a lender who works with borrowers with your exact type of financial situation!

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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