Why would a bank refuse a car loan?



Banks are direct lenders and one of the most common ways for borrowers to get a car loan. Here are some reasons why a bank might turn down a car loan – and what you could do to increase your chances of qualifying.

5 common reasons for car loan refusal

1. Your credit score is too low

A bad credit rating is one of the most common reasons for car loan denial, along with most traditional auto lenders. Banks tend to have high credit score requirements, and as a general rule, you need a credit score of 660 or more to qualify for a car loan. Your credit score is one of the main factors in qualifying for a car loan because it is used to tell the lender how well you have maintained your credit history.

You may be able to increase your chances of getting approved with bad credit by having a co-signer or by applying to a bank with which you have a good, long-standing history.

2. Lack of income or employment

To qualify for a car loan, you must have sufficient provable income to repay the loan. Your work history may also come into play, and some lenders require that you have been in the same job for at least six months to a year. Your income should also be proven with computer generated check stubs, or typically two to three years of tax returns. Unearned income such as social security or alimony is usually proven by award letters and bank statements. If you have income but not tangible proof, you risk being turned down.

If you’ve just landed a new job, or if your income is less than $ 1,500 per month, you might have a hard time meeting the requirements of a bank. If you need more income to qualify for a car loan, you may want to consider a co-borrower. If you have a co-borrower on a car loan, you are both responsible for paying for the car and you both get rights to the vehicle. Most lenders require co-borrowers to be spouses or life partners.

3. You do not have a permanent address

Most direct lenders require that you have a permanent address. In addition to having a permanent residence, borrowers who have lived in the same area for at least a year tend to have higher chances of approval. Borrowers who move frequently or who do not have a permanent address can pose a risk to a lender and make them reluctant to approve you.

To prove your residency, you usually need a recent utility bill in your name. Or, a recent bank statement with the address indicated. A lender may also require that your driver’s license also contain your correct address.

4. You already have too much debt

While your income and work history are important, lenders also assess how much of your income is available to pay off a car loan. If you meet the income requirements, but too much of your income is used to pay for other monthly expenses, you may not be eligible for vehicle financing.

Typically, lenders require that no more than 45% to 50% of your monthly income be spent on vehicle expenses and your other debts. If your income is tied to too many other bills, maybe it’s time to switch to a more affordable vehicle or cut back on some unnecessary monthly expenses.

5. Your credit history has bad negative ratings

While we’ve talked about credit score as a common reason for refusing a car loan from a bank, your credit history is also important. If you are in active bankruptcy, have recently repossessed a vehicle, or even have accounts in collection, this could be grounds for refusal.

One of the biggest concerns of a lender is your ability to pay off your credit on time. If your track record is patchy or filled with missed or late payments, a bank may question your ability to pay off the car loan on time. To find out what is reported on your credit reports, visit www.annualcreditreport.com to request your free credit reports. Right now, you can get free copies of your credit reports every week until April 2022. Examine your credit reports and make sure things are reported correctly and that there are no issues. mistakes that hurt your credit history and your score.

Need another car loan solution?

If you don’t know why you were denied a car loan from a bank, ask. Lenders are required to let you know why you were denied funding.

Even if you know the reason, it’s not always possible (or reasonable) to repair your credit score overnight, find a co-signer, or just free up monthly expenses. And negative scores on your credit reports can stick around for seven to 10 years. If you are in need of a vehicle right now and traditional lending institutions such as banks cannot help you, it may be time to consider a special finance dealership.

Special financing concessions are listed with subprime lenders, and these lenders factor in more than your credit score. You don’t have to go pick them up yourself, however. TO Auto Express Credit, we know where to find the dealers you need. Fill out our free auto loan application form, and using our nationwide dealer network, we’ll search for one in your area.



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