What To Do When Your Car Loan Gets Rejected: A Step-By-Step Guide4 min read
Car loan approval criteria differ from one lender to another. You may have heard from a friend about how easy it was for them, but things don’t always go as smooth as you expect.
Your hopes of acquiring a dream car may have been shattered when your car loan got disapproved. That’s why we are here to tell you it’s not the end of the world just yet.
The list of possible reasons for a declined auto loan may be a long one. But before you lose hope, keep in mind that there are also many ways for you to try again if one particular bank or lender denied you a car loan.
Figure out why your car loan was disapproved
In general, there are four steps toward car loan approval in the Philippines. First, you fill out the application form, submit the requirements, have an interview with the lender, and wait for the verdict.
While the odds of a car loan rejection are low, it is still bound to happen. Listed below are the five most common reasons why your car loan was disapproved:
1. Incomplete or wrong information
The easiest and yet the most crucial step. Many loan applicants tend to overlook the importance of information that you provide your lenders.
(Read: Bank Vs. Dealer Financing: Know The Pros And Cons Of Getting A Car Loan )
Simple mistakes, like providing an incomplete or even wrong house address, or giving an old phone number rather than the new one, are a bigger deal than you think.
These details are important because an inconsistent phone number or a wrong house address can make your lender suspicious of your credibility and could be a reason a car loan is disapproved.
2. Too large a loan amount request
In the Philippines, most banks and lenders allow around P300,000 to P1,000,000 depending on your income and the amount of the car that you are purchasing. It’s always better to be sure than to be denied a car loan.
Always take into consideration how much you can afford to pay for your monthly dues and the additional interests. You should also think hard and compare between the car that you want and the car that you need.
3. Lack of stable income due to inconsistent employment history
Maybe the dream of a new car is what has been spurring you on to work hard for the first six months on a new job, but maybe wait a bit before applying for an auto loan.
Most banks are strict when it comes to your financial stability and employment history. Some banks even require at least two years tenure in the same company before they even consider your application.
4. Bad credit score
One of the reasons for a declined auto loan in the Philippines is poor credit history.
Lending institutions take your credit score as a strong indication of how likely you are going to pay back your future loans. The higher your credit score is, the lower the risk is for the lenders.
(Read: Vehicle Classifications Guide: Which Segment Does Your Car Really Fall Under? )
You should first try getting a clean slate on your credit history before applying for a new loan to have a higher chance of loan approval.
5. Insufficient documents
Transparency is essential when you are applying for a car loan. You don’t want to seem suspicious when you are one step closer to obtaining your dream car.
Lenders deny applications with incomplete or questionable documents. For them it’s either you are being dishonest, or you are hiding something, which is high up their list of car loan approval criteria.
The next step to take if you are denied a car loan
When the car loan that you are applying for gets rejected, keep in mind that it is not the end of the world. It just means another chance for you to figure things out and improve on your application for the next lender.
Learn from your mistakes and make sure that all the loose ends of your previous approval have already been taken cared of. After being successful in doing all that, you will never be denied a car loan ever again.
How to improve your chances of approval on your next car loan
The first thing to do to improve your chances of progressing from your next car loan inquiry is to know what could get you declined. Look at the common mistakes listed above and see where you might go wrong.
Upon identifying and fixing the problems firsthand, you proceed to the next lender and better your chances of getting approved.