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What Should You Do If You Have Been Refused Car Finance?
  • admin
  • February 12, 2024

What Should You Do If You Have Been Refused Car Finance?

Applied for a car finance deal and turned it down? You are far from alone. It should not come as a surprise to you if your lender did not sign off on your application. There is never a guarantee of acceptance when you apply for a loan. A lender will peruse your application to determine your affordability, and there are multiple factors that play a paramount role in increasing your chances of approval.

If you have been rejected for car finance multiple times, you should try to find out a reason for it. Not until you know the reason will you be able to get back on the right path. However, no car dealer or lender is bound to inform you of the reason for casting you aside. Well, there is nothing to worry about if you are not informed of the reason for disqualification. You can investigate it by yourself.

What are the reasons for failing to qualify for a car loan?

Here are the most common reasons why your application was turned down when you applied for a car loan.

1.  A poor credit history

Your credit score is by far and away the most significant factor to decide on your approval. A poor credit rating is perceived as a higher risk, and therefore, most of the lenders will be indisposed to lending you money.

There could be several reasons for a poor credit rating, such as missed payments, high credit utilisation ratio, a lot of debt you owe and the like. Missed payments and defaults can wreak havoc on your credit score as they imply that you borrowed more than you could pay back. The odds are you will fall behind on payments this time as well.

Though high debt and credit utilisation can also have a damaging impact on your credit score, they account for 10% of your credit score, while payment history accounts for 30%. Your chances of approval are better despite a higher credit utilisation ratio as long as you prove that you pay off your credit card balances on time.

2.  Your age

Since you have come of age, you are free to apply for a loan, but this is not true with all lenders, especially when you apply for car loans in Ireland. If you have just turned 18, most of the lenders will find it difficult to entertain your application because your credit history will be very little or nil.

Lenders cannot be sure about your repaying capacity. Some lenders follow stricter lending terms and conditions for car loans. For instance, some lenders are not flexible with giving the nod when you are between 18 and 21 years old.

3.  Employment status

Self-employed people struggle more than full-time employees to get approval for a car loan. As a self-employed, you cannot show a steady flow of cash coming in, and therefore, your lender will be a bit hesitant to give the green light to your application.

However, it does not mean the application process is so smooth for full-time employees. If you are a borrower with an unstable employment history, your lender will call your credibility into question. Bear in mind that being employed is one thing, and being able to repay the debt is another.

It is not necessary to have been employed or owned a business if you want to have a lender approve your loan application. For instance, if your income is only from renting your property, you are still eligible to qualify for a car loan.

What to do if you have been turned down?

If you have been turned down, you should take the following steps to improve your chances the next time you apply for them.

1.  Halt new applications for a while

The first thing you need to do is to stop putting in new applications because if you continue to do so, you will end up losing more of your credit points, and as a result, your approval chances will be even more bleak. You should make a new application unless you are in a better position or you think you have dealt with what was the cause for your rejection.

2.  Fix your credit score

Focus on ways to build your credit history if you do not have any. A rule of thumb says that a credit builder loan can help meet your purpose.

These loans are small loans and last for up to six months. As you will be paying down the debt in fixed instalments, it can help you prove that you stick to your payment plan. Your lender will inform credit bureaus of your timely payments, and they will be recorded on your credit file.

If your credit score is less-than-perfect, you should try to make it better with the following tips:

  • Pay off all your debts on time.
  • Keep your credit utilisation ratio lower.
  • Reduce your debt-to-income ratio to 30%.

Contact a financial advisor if you are struggling with the settlement of your debt.

3.  Find a suitable lender

Every lender has its own criteria. Though almost all lenders accept applications from bad credit borrowers, the bare minimum credit score will vary. Before you borrow money online, you should always do research about a lender that suits your credit profile.

Interest rates vary by lender, so make sure that you carefully study them. Car finance deals like hire purchases and personal contract purchases available from car dealers can be more expensive than personal loans from a direct lender. It is vital to do your homework so you are not ripped off.

The bottom line

If you have been refused car finance many times, you should identify the reason for it. Fix the issue and make sure you do not fill in a new application unless that issue is resolved. Car finance deals can blow your budget over time, so try to consider using personal loans from direct lenders. They are much more affordable than hire purchases and personal contract purchases.

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