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Car Loan Rejections at an All Time High: What to Know

Finance | 09/11/2023 18:23
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The rejection rate for car loans is at an all time high right now. The rate of rejection is 14.2%, which is the highest recorded rate since the Federal Reserve started keeping track 10 years ago in 2013. The rejection rate was at 9.1% just seven months ago when the data was released in February. So what is the cause for this high rejection rate, and what can you do to increase your chances of getting approved?


Here’s what you need to know about car loan rejections.

Why was I rejected for a car loan?

Before we talk about why the rejection rate is so high, we need to talk about why car loan rejections occur in the first place. Lenders want to loan money to people who will pay them back. They make more of a profit when you simply make your payments, which includes interest, than they do when they need to chase people down for payments. If you default on your loan and they need to repossess your car and sell it, it is a lot of work on their end and ultimately costs them money. Lenders want to give loans when they feel confident you will pay them back in a timely manner. They reward people who have a good financial track record with good interest rates, as they assume that they will not have to track down missing payments.


There are several different reasons you may be rejected for a car loan. Here are some of the most common reasons.


You have bad credit.

One of the most common reasons for rejection is that you have bad credit. Credit scores take several factors into consideration and give you an overall score to reflect how financially fit you are. Credit scores look at the following factors:

  • Your payment history (35%)

  • The amounts you owe (30%)

  • The length of your credit history (15%)

  • New credit (10%)

  • Credit mix (10%)


Your payment history and the amount of debt that you are in are the two factors that affect your score the most. If you have a history of missed payments and have a lot of debt, lenders will not want to give a loan out to you. Credit scores are broken into five categories:

  1. 800 to 850: Excellent.

  2. 740 to 799: Very good.

  3. 670 to 739: Good. 

  4. 580 to 669: Fair.

  5. 300 to 579: Poor.


If you have excellent credit or very good credit you will most likely not have a problem getting approved. But as your score gets lower and lower you will have a harder and harder time getting approved. If your credit is fair or poor you may be rejected or only be able to find high interest loans.

There were errors on your application.

A surprisingly common reason for car loan rejection is simple: there are clerical errors. If you write your address wrong, incorrectly record your salary, or miss a box that needs a signature, you might be rejected. 

You requested too much money.

Lenders will look at your income to determine how much money you can afford every month. If you are trying to buy a luxury car but have an income that cannot support those payments, a lender will likely reject you. It’s important to set a realistic budget of what you can afford before applying for a car loan that is beyond your means.

You have an irregular income.

If you are self employed or a seasonal worker you may have a harder time getting approved for a loan. Stable income is key to any loan application, and without it you may run into trouble. 

You have an open bankruptcy, lawsuit, or other negative event on your credit report.

Your credit report reveals a lot of information to lenders. Any of the following items on a credit report could be a red flag to lenders and cause them to reject your application.

  • Open bankruptcy

  • Open lawsuit

  • A repossession

  • A foreclosure

  • Delinquent child support payments

  • History of collections

  • A federal or state lien


All of these items means that you have had financial issues at some point and therefore make you a riskier borrower. It’s completely possible to have a credit score that qualifies you for a loan, but the lender may still look at these factors and determine you are not a good candidate. 

Why are car loan rejections so high right now?

So why right now is there such an increased rate of car loan rejections? There are a number of factors that are creating a burden for car buyers.


The price of new cars.

Part of the problem is that car prices are incredibly high right now. This means that people need to borrow more money than they would have in the past, while their income has probably stayed the same. 


The increase in interest rates.

Over the past several months the Fed has increased the benchmark interest rate three times. Interest rates are now much higher than they were at the beginning of the year. Couple this with an increase in car prices and you have a higher borrowing amount that is an increased burden on borrowers. 

Total debt amounts are higher.

When lenders look at applications they must consider all debt that the application has. Consumer debts have increased across the board, affecting the debt to income ratio for many people. The average American held $101,915 in debt in 2022, up 5.8% from the previous year.

What can I do to get approved for a car loan?

Since the current economic conditions are out of your control, it is easy to feel helpless if you need a loan and can’t seem to get approved. But there are some steps you can take to increase your chances of getting approved.


Get a car you can afford.

If you need a car but can’t quite afford the payments associated with the car of your dreams, you may need to readjust. Do research to determine which economical model will work well with what you need. There are so many options on the market now and even the base models are well equipped with all of the modern day conveniences. Skipping the addons and luxurious touches can also help reduce the overall cost of  your new car and increase your chance of approval. 


Make a higher down payment.

An increased down payment will significantly increase your chance for approval. The more that you can reduce the risk to the lender, the more likely you are to get approved.

Work on your credit score.

Taking a few months to work on your credit score can make all the difference. Making on time payments, paying down some debts, and reviewing your credit report for errors can give you a significant boost and allow you to reapply with a better chance for approval.


Wait for a negative event to expire. 

If you have a negative event on your credit report you may need to simply wait it out. Most negative information stays on your credit report for between 7 and 10 years depending on the type of event. Negative information may include the following:

  • Late payments: Stay on your report for 7 years

  • Collections payments: Stay on your report for 7 years

  • Bankruptcy public record: Stay on your report for 7-10 years depending on the type of bankruptcy

  • Repossessions: Stay on your report for 7 years (starting at the first date of missed payments)

  • Foreclosures: Stay on your report for 7 years

  • Liens: If the lien is paid off it will stay on your report for 7 years. If it is unpaid it will stay on your report for 15 years with Experian and Equifax, but it will remain indefinitely with TransUnion


If you are close to a negative event expiry, it might be worthwhile to wait it out. If you are years away from it expiring you may need to get a cosigner to make you a more attractive applicant to lenders.


Get a cosigner.

If you know that you can afford the payments but your credit score doesn’t reflect that, a cosigner can help convince the lender that you are a worthy applicant. Cosigners give the lenders another person to hold responsible for payments, making them more confident in their decision to lend you the money. Be sure you can afford the payments however and have an honest conversation with your cosigner about your financial situation. 


Check your application for mistakes.

Review your application a few times before submitting it. Getting rejected for a clerical error is frustrating but avoidable. After filling out the paperwork it's a good idea to put it down and come to it later for a final review; fresh eyes can pick out mistakes more easily.


That’s everything you need to know about the current car loan rejection rate.


If you have a car loan that you aren’t happy with, contact Auto Approve today! We can help you refinance your loan and save you loads of money.


So don’t wait.



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