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What Would Disqualify You From a Car Loan?

Finance | 01/04/2023 00:00

If you have ever applied for a car loan only to be rejected, you may feel disheartened (and maybe even a little bit confused). But all is not lost! Understanding why you were turned down can help you get approved in the future, and correcting any problems might even help you get a better car loan APR.

Here’s why you might be rejected for a car loan (and what you can do to ensure it doesn’t happen again).

Why was I denied a car loan?

Getting denied a car loan is not uncommon. There are quite a few reasons why it may happen to you, and there are always ways to fix your situation to ensure that you can get approved for a car loan in the future.

Your credit score is poor.

A poor credit score is the most common reason to be denied a car loan. Credit scores are broken into the following categories:

  • Exceptional (Super Prime): 800-850

  • Very good (Prime): 740-799

  • Good (Near Prime): 670-739

  • Fair (Subprime): 580-669

  • Very poor (Deep Subprime): 300-579


If your credit score is fair or very poor, you will most likely have a very difficult time getting approved for a car loan. A score of at least 620 is recommended to get approved for a car loan. The better your score is, the better the car loan APR you will be offered. There are auto lenders for people with poor credit scores, but they have high interest rates and tend to have more penalties and fees associated with them. 

There were errors in your application.

It’s also relatively common to be denied for a car loan due to a simple error in your application. If you forgot to fill out a section or mistakenly answered a question, you may be denied a car loan. 

You have a large amount of debt.

If you have a high debt to income ratio you may be denied a car loan. Lenders look at the totality of what you owe, including mortgages, student loans, credit card debt, and more. The more you owe compared to how much income you have may make you more of a risk. 

You don’t have a long credit history.

If you do not have a long credit history, lenders may be reluctant to loan you money for a car. There simply isn’t enough information to determine whether or not you are a good candidate for a loan.

What happens if you are denied a car loan?

The good news is that getting denied a car loan doesn’t automatically hurt you (besides meaning that you do not have the new car you want). But if you are rejected for multiple loans that all pull hard inquiries on your credit report, that may lower your credit score slightly. 

Lenders are required to tell you why you were rejected for the loan. If they do not state the reason in the initial response, reach out and inquire. They have 60 days to respond (if they do not respond they will be in breach of the Equal Credit Opportunity Act.

It may take some work, but in most cases you can fix whatever caused you to be rejected in the first place.

Calculating car loan costs

What should I do if I am denied a car loan?

If you are denied a car loan, there are several steps you can take to ensure you get approved the next time around. 

You were denied due to a poor credit score.

If you were denied a car loan because you have a poor credit score, you can work to improve your credit score for the next time you apply. Your credit score is based on five different categories:

  1. Your payment history (35%): Are your payments on time and in full? 

  2. Your amounts owed (30%): How much debt are you in and how does that compare to the amount of credit you have available to you? 

  3. The length of credit history (15%): How long have you had your accounts open?

  4. Your credit mix (10%): Do you have a healthy mix of accounts (such as a mortgage, credit card accounts, student loans, etc)?  

  5. Your new credit (10%): Do you have new accounts where you haven’t proven your ability to repay?

There are many factors that go into your credit score, so taking the time to review your credit report will give you a good sense of what areas you can improve in. Improving your credit payment history is the most effective thing you can do to increase your score as it has the largest weight for your credit score. You can improve this category by committing to making full and on time payments to all of your accounts. Signing up for autopay is one great way to ensure you don’t miss a payment. But there are lots of other steps you can take to improve your credit score and give you a better chance at getting approved for a car loan:

  • Review your credit report for errors or mistakes.

  • Request higher credit limits on your accounts. This will decrease your credit utilization ratio and improve your score.

  • Pay down accounts that have high credit utilization ratios (the ratio of debt you are in compared to available credit).

  • Catch up on any past due accounts. Consider contacting a credit counselor if this feels too overwhelming. They can design a debt repayment plan that will work for your budget.

  • Limit applying for new accounts. These can trigger hard inquiries which can lower your score.

Building your credit score takes time, but it is definitely worth it. Having a good credit score will help you get approved for loans, get better interest rates, and help you get better insurance rates.

You were denied because of an error in your application.

Most of the time you can simply apply again, but be sure to double check that everything is correct the second time around.

Pay debt note

You were denied because you have a large amount of debt.

If you have a large amount of debt you should definitely prioritize paying some off before you put yourself in even more debt. There are several ways to achieve this depending on your circumstances.

You can use the avalanche method, which involves paying off your debts by order of interest rates. By paying off your highest interest rate debts first, you will help save yourself further costs in interest. This is one of the most popular (and quickest) ways to pay off debt.

You can use the snowball method, which involves paying off your debts by size, starting with the smallest amount first. This is great for your morale and can keep you motivated to pay off your debts.

But whatever method you use should start with a solid budget. Creating a budget is the best way to organize your finances and can help show you where you can cut costs and save money. Contacting a debt consolidation service can also help you to get organized and keep on top of your payments.

You were denied because you don’t have a long credit history.

This is a tricky one. There is no quick fix to getting approved if you do not have a long credit history. It can take you several years to build up your credit score. Getting a credit builder loan is a great step to take when getting started. Credit builder loans deposit money in a savings account, and once you pay off the balance the money is released to you. Your payments get reported to the credit bureaus and can give your credit score a good raise so long as you make full payments.

Secured cards are another way to help build credit. These cards require you to deposit money in order to open an account. This is referred to as your security deposit. Paying the minimums on these accounts can help you establish credit.

You can also consider applying for a car loan with a cosigner. When you apply with a cosigner they will take both of your credit histories into account. If your cosigner has a good score you will have a much better chance of being approved for a loan. Additionally, making payments on your new car loan will help you build credit. A cosigned loan is in your name and you are responsible for payments, but your cosigner will be responsible if you default.

You can also apply for a joint loan, where you and your counterpart will share equal responsibility for the loan. Lenders will again consider both of your credit scores and histories when determining eligibility. Making payments will help you to build your credit, and you can finally get the car you’ve been wanting.

A woman choosing a car on a laptop

While getting rejected for a car loan can be disheartening, there are ways to make sure it doesn’t happen again.

If you already have a car loan but are looking to refinance, Auto Approve can help! Get your free quote today to find out how much you could be saving!


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