When applying for a car loan through a dealership or directly with a lender you are subject to the lender's specific terms and conditions for approval. If you do not meet these terms you will find your application will be rejected.
Not only is this a disheartening process as you will need to find another way to finance your new vehicle, but now your credit score is also negatively affected.
So what are the reasons that a car loan application could be declined and what can you do to avoid your application getting disapproved? We have put together the top 3 reasons for application rejection and what you can do to ensure you get the best loan for you.
Top 3 reasons for a car loan application getting rejected
1. Insufficient income
When looking to purchase a new vehicle you will need to assess how much you can currently afford based on your income and savings. The average vehicle cost in Australia will cost around $30,000, however, this will be determined on how much you can afford, your needs and desires. You can read our guide for a more in depth guide on how much you should spend on a new vehicle.
If you are looking to finance your vehicle you will be presented with a few options.
Dealership finance, If you are purchasing a new vehicle from a dealership and are looking to finance directly from the dealership's chosen lending provider. Generally, this option will give you a lower rate but a higher risk of your application being declined.
Private financing, applying directly with a lender of your choice independent of dealership financing. If purchasing a used car or shopping around for the best rate you will be looking to apply directly with lenders through private finance.
Either of these options will rely on your lending capacity based on your current income.
Lenders will decide if you are a good candidate to provide finance to not only based on the amount you earn after tax but also your outgoing expenditure month on month.
Factors which will impact your borrowing power are.
Other loans which you are paying off, eg. home loans, private loans.
The number of dependents you have
The amount you spend on food, bills and luxury items
How long you have been in your current employment
If your income has changed over the last 6 months eg. jobkeeper allowance
Lenders will determine if you are able to afford the repayments for each loan. Providing bank statements will be necessary to prove your current lending capacity. If you do not meet the necessary criteria for the loan amount requested lenders will likely ask you for a cosigner to ensure repayments are able to be made.
2. Poor credit score
Your credit score is your unique identifier on how lenders see your suitability as a customer. Below is how your credit score is assessed based on the score.
If you have a poor credit score from defaults in payments or bankruptcy you will be less likely to be approved for a car loan. There are lenders that can provide you with car finance if you have bad credit, however, they will generally ask for a higher initial deposit or a trusted cosigner as insurance to ensure repayments are paid on time and in full.
Your credit score will improve over time with proof that you are able to repay your credits on time.
If you are applying for a loan and your application is declined, your credit score will be negatively impacted. Each time a lender requests access to your credit file can impact your credit score so applying for multiple loans at the same time can be detrimental to your future lending capacity.
3. Incorrect information or incomplete docs
When applying for a loan you will be asked extensive and in-depth questions in order to get an accurate picture of who you are and your lending capacity. This information when filled out numerous times for different applications can be tedious and time-consuming.
While every lender will require similar required information (license number, bank statements, income, and payslips), each lender has its own process for how they receive information and the format in which it is required.
If the information provided to the lender in any way is incorrect or doesn’t match your documentation there is a high chance your application will be rejected. Lenders are very conscious of fraud and ensuring they have all information necessary to ensure their safety.
How can I ensure my car loan application won’t be declined?
CarClarity was started and operates to ensure more Australian’s get the right loan and will be approved the first time with the right lender. In doing so we serve to combat the 3 biggest reasons why 1 in 5 people’s car loan applications are declined.
Insufficient income - SOLVED
As Australia’s only accurate online lender comparison we are your personal broker service. We have developed our own proprietary smart matching technology to give you only the best options of lender options based on your income, expenses and details. Our experts will then give you the best of those lending options based on the life of the loan term, optimal deposit amount, and whether a cosigner will be necessary to secure the best rate loan.
Poor credit score - SOLVED
Our smart technology will do a soft check of your credit score, meaning we will have an accurate picture of your current credit score without affecting it in any way. This soft check ensures our matches are accurate based on your information and will only give you the options in which you will be approved for. No more last-minute letdowns and rejections due to your current score.
Incorrect information or incomplete Docs - SOLVED
100% online process, you will only be required to fill out 1 application, either online or through one of our friendly customer service agents. We will format the application based on the lender's requirements and ensure all information and documents are received prior to sending it to the lender. No back and forth, no incorrect information. Chances of our customer's car loans being disapproved due to insufficient documentation negated.
To ensure your application for car loan finance is approved the first time and every time start an application with CarClarity now.
David Fahim is CarClarity's COO, joining forces with two founding team members that share the same passion of helping customers get the right car loan.
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