Denied A Car Loan? Here's What To Do | (2023)

An auto loan application may be rejected because of your credit history or current financial situation. But by reaching out to your lender and improving your finances, you can work on building an application that won’t be denied in the future.

Why was I denied a car loan?

Lenders frequently reject applicants because of credit score, credit history and overall debt.

Errors in the application

You can be denied a loan due to simple errors in the application. If you miss a section or note information incorrectly, lenders may reject you without giving you the chance to update inaccurate details.

Always review each detail on your application to ensure you have everything correct. You may be able to reapply again, but accuracy the first time around will save you time.

Poor credit score

Most lenders have a minimum credit score as part of their eligibility criteria. In general, lenders want to see fair credit — a score of 620 or higher. If your credit score is lower than this requirement, you will immediately be denied.

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There are auto loan lenders for bad credit. But these will cost more in the long run and may have more fees — like origination fees or prepayment penalties — than standard auto loans.

Limited credit history

If you have limited or no credit history, lenders will not be able to gauge your ability to make future auto loan payments. They may use it as a reason to deny your application. Unfortunately, it will take time to amend this. You will need to take on other, smaller debts to build your credit history before you apply again, or apply with a co-signer.

Large amount of debt

If you have a lot of debt gathered from other loans or credit cards, your DTI ratio — or debt-to-income ratio — will be higher. A DTI ratio of 50 percent or higher is considered a red flag and may lead to rejection. Paying down your debts is the best way to lower your DTI, but if you’re able, a second source of income can also lower your DTI.

What to do if you were denied an auto loan

One rejection isn’t the end of the world. Take a few steps before applying again to boost your chances of being approved.

Contact your lender

Lenders are required to give you the specific reasons your application was denied. If it isn’t automatically sent, request it within 60 days of your application. Otherwise, it will fall outside of the Equal Credit Opportunity Act.

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If it was something as simple as an application error, you can make adjustments and reapply. If the reason was your credit score or other debts, you can work on improving them before you apply again.

Improve credit score

Your credit score is one of the main factors lenders consider when you apply. Take the time to improve your credit score by checking your credit report, paying your debts on time and lowering your credit utilization ratio.

This will take a few months. If you’re in a rush, consider other options while you work on your score. But once you’ve built up a solid recent repayment history, lenders will see you as less of a risk.

Minimize your debt

Lowering your debt is key to attracting future lenders. You should focus on paying down your current debts while also avoiding new loans or credit cards.

Review your budget and try to remove any unnecessary expenses before reapplying. Debt consolidation is also an excellent way to minimize your debt-to-income ratio (DTI), which lenders use to determine if you have enough money to comfortably afford a new loan payment.

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Look for poor credit lenders

There are lenders that accept poor credit scores. This might be a way to get you behind the wheel sooner rather than later.

These lenders market specifically to drivers with low credit scores. However, compare options carefully — auto loans for bad credit tend to have much higher interest rates that could cost you thousands in the long term.

Other options

Your choices don’t depend on your ability to quickly improve your credit and lower your debt — though both can certainly help.

“Buy here pay here” dealers

A BHPH dealership is not perfect, but it can be a good option if you have a low credit score and are desperate for a vehicle.

BHPH dealerships both sell and finance the vehicles on their lots. Approval standards for credit tend to be lower, and the process is much quicker than traditional lending. But interest rates are very high and there are fewer vehicles available.

(Video) When a dealer promises car financing but it is denied

Joint auto loans

A joint auto loan is when you and someone else — typically a partner or spouse — share equal responsibility for a car loan. The lender will consider both incomes and credit scores when making an approval decision. A joint application can also lead to a lower interest rate and the ability to take on a larger loan because of the added income.

Co-signed auto loan

A co-signed auto loan is when you still carry the full responsibility of the monthly payments but have someone else backing your loan. Like with a joint auto loan, both your credit history and your co-signer’s credit history will be factored in during the application process. This increases your chance of approval and may mean more favorable interest rates and terms.

The bottom line

If you’ve been denied, take a step back. Your lender should provide a letter stating why you were rejected.

As with anything in the realm of finance, preparedness is key. Next time you apply, do your research, keep an eye on your credit score and lower your total debt ahead of time. This will help ensure your application is the best it can be when you submit it to a lender.

Learn more


What happens if your car loan is denied? ›

Getting denied for an auto loan doesn't in itself hurt your credit score. The lender didn't extend anything, so there's nothing that can hurt your score. However, multiple denied applications at once could hurt your score. A bank conducts a “hard inquiry” when you apply for a loan.

Can you get approved for a car loan and then denied? ›

Can a car loan be denied after approval? Though rare, it is possible to believe you are fully approved and learn later that your car loan was denied after purchase. The good news is that car loan denials after approval are indeed very rare, and the reason they happen at all is tied to the fine print of a contract.

Can I apply for a loan again after being denied? ›

However, be aware that you need to wait at least one month before reapplying for a loan after being denied and that you should only sign up for a loan if you are sure you will be able to make the monthly payments plus interest and fees. You can also try reapplying for a smaller loan amount.

Does getting denied an auto loan hurt your credit? ›

Getting Denied Does Not Hurt Your Credit Score

If you're denied, though, it doesn't have an additional impact beyond the initial inquiry. If you're unsure about whether you'll qualify for a loan and want to avoid a hard inquiry, consider lenders that offer prequalification.

Can you apply for an auto loan twice? ›

The answer is yes! You can have two car loans at one time, but you must be mindful that it may be more difficult to qualify for a second loan. Lenders will only approve you if your income and debt can handle the added monthly expense. In addition, you will need good to excellent credit to receive a low APR.

Why am I being declined for car finance? ›

Why have I been refused car finance? If you've been refused car finance, a bad credit score could most likely be the reason. Finance companies use factors like your credit score and history to determine whether they'll lend to you. So, you may be refused car finance if your credit score is low or in poor shape.

How high does your credit score have to be to get approved for a car? ›

In general, you'll need a credit score of at least 600 to qualify for a traditional auto loan, but the minimum credit score required to finance a car loan varies by lender. If your credit score falls into the subprime category, you may need to look for a bad credit car loan.

Does CarMax finance everyone? ›

A: Yes, you can. We offer financing solutions for all types of customers with different credit profiles. CarMax works with several leading financial institutions, which improves your approval chances.

What credit score do you need for auto approve? ›

Minimum Borrower Requirements

Additionally, the company says that you'll need a credit score of at least 730 and must choose a loan term of at least 72 months to qualify for its lowest advertised interest rate.

What 2 things should you do if your lender rejects loan application? ›

What To Do If Your Mortgage Loan Is Denied In Underwriting
  1. Talk To Your Lender. ...
  2. Establish Credit History. ...
  3. Check For Errors In Your Credit Report. ...
  4. Pay Down And Diversify Debt. ...
  5. Keep Accounts Open. ...
  6. Increase Your Credit Limits. ...
  7. Keep Credit Utilization Low. ...
  8. Build Your Application Before Reapplying.
Jan 12, 2023

What two things should you do if your lender rejects your loan? ›

Here are three immediate steps you can take after a rejection.
  1. Identify Why Your Loan Was Denied. Before you re-apply for a loan, take time to identify why your lender denied your application. ...
  2. Remove Errors or Negative Remarks From Your Credit Report. ...
  3. Improve Other Key Qualification Factors.
Mar 29, 2021

How long after being declined for a loan can I apply? ›

That is why it is always recommended to wait for some time after you get rejected to apply for another loan. Also, it is important to note that hard inquiries like declined loans can stay on your credit file for up to five years before they are removed from your history.

How many points does your credit score go down when you are rejected? ›

This will cause an inquiry to appear on your TransUnion report (not your Equifax or Experian reports) and may result in a temporary decrease in your credit score. The drop in your credit score is often insignificant and roughly 5 points.

How many inquiries is too many for a car loan? ›

For many lenders, six inquiries are too many to be approved for a loan or bank card. Even if you have multiple hard inquiries on your report in a short period, you may not see negative consequences if you're shopping for a specific type of loan.

How long do you have to wait to get another car loan? ›

Strictly speaking, you can refinance a car loan as soon as you find a lender that will approve the new loan. Some lenders won't refinance a car loan until it has been open six months or more. Other lenders have no set waiting period after you've purchased a car.

How many times can anyone apply for car loan? ›

You can apply for as many auto loans as you want, although this may not be advisable. If your applications fall outside the typical 14 to 45-day window most credit scoring models allow, each additional hard inquiry will show up on your credit report.

How can I increase my chances of getting a car loan? ›

How to increase your chances of being approved for car finance
  1. Improve your credit score. ...
  2. Put down a deposit. ...
  3. Register on the electoral roll. ...
  4. Make a joint application (if your partner has a better credit score!) ...
  5. Consider a guarantor. ...
  6. Avoid multiple applications.
Sep 1, 2022

Can you reapply for car finance? ›

Don't make multiple applications

It's tempting, when you've been refused car finance, to immediately reapply with someone else. However, the irony is this will negatively affect your credit score as some lenders will carry out a hard search on your report.

Can I get a car with 515 credit score? ›

People with credit scores below 540 receive less than 7% of all auto loans. As a result, your odds of getting approved for a decent car loan are slim. You will need to compare your options carefully and consider either placing a bigger down payment or purchasing a vehicle that's less expensive.

Can I get a car with a 500 credit score? ›

It's possible to get a car loan with a credit score of 500, but it'll cost you. People with credit scores of 500 or lower received an average rate of 13.97% for new-car loans and 20.67% for used-car loans in the second quarter of 2020, according to the Experian State of the Automotive Finance Market report.

What FICO score do car dealers use? ›

Most car dealerships use the FICO Score 8 scale to determine your eligibility for a loan. The FICO score is the most widely used because it is considered to be the most accurate assessment of your credit standing. It takes the scores of all three major credit bureaus to create a FICO score.

Does CarMax verify income? ›

To complete your transaction, you may be required to provide any or all of the following: Valid driver's license. Proof of insurance (required for all vehicle sales) Proof of income.

Which company is best for car loan? ›

Best Car Loan Rates of February 2023
  • Best Overall: PenFed Credit Union.
  • Best Online Auto Loan: LightStream.
  • Best Bank for Auto Loans: Bank of America.
  • Best Credit Union for Auto Loans: Consumers Credit Union.
  • Best for Used Cars: Chase Auto.
  • Best for Bad Credit: myAutoloan.
  • Best for Refinance: AUTOPAY.

Is CarMax based on credit? ›

CarMax's pre-qualification process uses soft credit inquiries and won't impact your credit. When you browse our car inventory with your pre-qualification, you'll see personalized terms on CarMax vehicles, including APR, monthly payment, and down payment requirement.

How can I get a car with a 450 credit score? ›

Getting an auto loan with a credit score of between 400 and 450 is more possible than you may think. These are installment loans, and since the vehicle is used as collateral to secure the loan if you default on the payments, the lender has a good chance of getting your car or your money.

Is it hard to get an auto loan with a 600 credit score? ›

A credit score of 600 won't necessarily keep you from getting an auto loan, but it's likely to make that loan more expensive. Taking steps to improve your score before you apply for a car loan can put you in the driver's seat and make it easier to negotiate the best possible loan terms.

Can I get approved for a car loan with a 530 credit score? ›

While it may seem daunting to qualify for a car loan with a bad credit score (below 580), there is a large network of lenders and car dealers who are more willing to work with low- and bad-credit score borrowers. If all goes well and payments are made on time, it can help boost your credit profile.

Do lenders have to tell you why you were denied? ›

If a lender rejects your application, it's required under the Equal Credit Opportunity Act (ECOA) to tell you the specific reasons your application was rejected or tell you that you have the right to learn the reasons if you ask within 60 days.

What should you not say to a lender? ›

10 things NOT to say to your mortgage lender
  • 1) Anything Untruthful. ...
  • 2) What's the most I can borrow? ...
  • 3) I forgot to pay that bill again. ...
  • 4) Check out my new credit cards! ...
  • 5) Which credit card ISN'T maxed out? ...
  • 6) Changing jobs annually is my specialty. ...
  • 7) This salary job isn't for me, I'm going to commission-based.
Oct 19, 2017

Does rejected loan affect credit rating? ›

Impact of Loan Rejection on your CIBIL Score

When a bank or credit institution makes an inquiry, it is known as a hard inquiry. A hard inquiry downgrades your CIBIL score; hence, you should avoid multiple loan applications from different banks simultaneously, as every rejection will further reduce your CIBIL score.

Can you appeal loan rejection? ›

Yes. However, this may require a full copy of the credit file from a credit reference agency. Agencies hold information that helps lenders establish individuals' credit record.

What happens if I apply for a loan twice? ›

Each hard search can lower your credit score. So, if you've made many credit applications at once it can significantly reduce your rating. This may make it harder to get credit that requires a good rating like a car on finance or renting a house.

Do multiple auto loan inquiries count as one? ›

If you're shopping for a new auto or mortgage loan or a new utility provider, the multiple inquiries are generally counted as one inquiry for a given period of time. The period of time may vary depending on the credit scoring model used, but it's typically from 14 to 45 days.

What happens if you apply for 2 loans at the same time? ›

While multiple loan applications can be treated as a single inquiry in your credit score, even that single inquiry can cause your credit score to drop. However, the impact on your credit score should be the same as if you'd applied for just one loan.

Can I get another car on finance if I already have one? ›

Yes, even if you have outstanding finance on your car, you may be able to get a new one before your agreement ends. You can end your existing agreement by paying the settlement figure.


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