There are a number of reasons why you might be denied a car loan. However, if you’re aware of these reasons ahead of time, you can lessen your risk of rejection and increase your chances of quick and easy approval. Read on to learn what these reasons are.
Bad Credit or a Limited Credit History
If you have a less than perfect credit score (a score of less than 650), you will find it challenging to get approved for financing. You will also find getting approved for a car loan difficult if you don’t have an established credit history. This is because lenders look at a person’s credit history to determine how responsible they are at borrowing money. Therefore, if you no history or bad history, they will see you as high-risk. Fortunately, there are several options if you fall into one of these credit categories. For instance, you could choose a lender that has experience working with subprime customers. Alternatively, you could get a loan cosigner. A cosigner reassures lenders that a loan will be paid off, thereby minimizing the lender’s risk and increasing your approval chances.
While it is possible to get car loans in Canada with a subpar credit history or no credit history, it does come with caveats. For instance, you may have to accept a higher interest rate. Therefore you should make getting your credit on track a top priority. When you build good credit, you will benefit from lower monthly payments and fees and have potentially better approval in the future.
Errors on Your Credit Report
Everyone makes mistakes, even credit bureaus. For instance, you might have a bankruptcy from over seven years ago still on your report, or they might have noted a missed payment, which shows up as a collections report when it was actually a mistake with your billing. Lenders won’t be able to identify errors on your credit report and will simply label you as risky. Therefore, you need to handle these errors as soon as possible so you can get a loan.
Suppose you’re a seasonal employee, a freelancer, or a service provider working under the table. In that case, you might have problems getting approved for a car loan because your income is considered irregular. In general, an income of $1800 per month before taxes is considered the minimum requirement to qualify for a car loan in Canada. This breaks down to about $10.50 an hour for 40 hours per week.
When it comes to getting a loan with a traditional institution like a bank, if you aren’t making the minimum required income and don’t have a decent credit score or credit history, they may consider you a high risk. As a result, you’ll likely be denied the loan. This seems harsh but consider it from their point of view. If you don’t have a regular income, how can they be assured that you’ll be able to make the car payments every month? However, if you have an irregular income, it’s possible you can get a loan if you go with a subprime lender. Alternatively, you could put down a down payment or add an employer to your resume.
Inputting the Wrong Information
Accurate documentation is essential to get approved for a car loan. Therefore if you input the wrong information on your form or fill out something incorrectly, you may be denied a loan. This is why you must review your loan form carefully before submission. You may even want to get someone else to look it over as well, just to be sure. However, mistakes happen. Therefore, you should contact your lender and explain the situation. In most cases, they will either make the correction or have you submit a new application.
As a Canadian, you may be denied a car loan if you have bad credit, a limited credit history, errors on your credit report, irregular income, or mistakes on your credit application. Fortunately, these reasons for denial can all be dealt with. For instance, you can get a cosigner or work with a subprime lender if you have bad credit or no credit history.