Common Reasons Why Canadians are Rejected for Car Loans
Bad credit, limited credit, irregular income and submitting the wrong information on an auto loan application are all factors that play a role in determining whether a person can be approved for auto financing or not. Knowing these potential denial reasons before applying for a car loan could lessen the risk of rejection and increase the chances of getting approved.
The process of applying for auto financing at a traditional bank can be difficult as a subprime customer. There are hundreds of reasons why a person might be denied access to a loan. Fortunately, knowing about these potential denial factors pre-applying for a loan could lessen the risk of rejection, increasing the chances of an easy and fast approval.
Here are three common reasons why a person might get denied access to a car loan (and how to avoid them)."
1. You have bad credit or limited credit history
Canadians with less than perfect credit typically have a more difficult time getting approved for financing, especially through traditional banks. People who haven’t established their credit history might also struggle getting approved, as lenders look at an applicant’s credit history to judge how responsible they are with borrowing money. Unfortunately, lenders see Canadians with poor credit or no credit history as a risk factor with regards to loan repayment. However, there are options for those who fall under these credit categories. You should consider working with a provider (like Canada Drives) that has experience working with subprime customers. You can also consider asking someone to cosign your agreement to minimize a lender’s risk. Both of these options can boost your chances of approval, regardless of your credit situation.
While there are quick fixes to getting a loan with low or no credit (such as accepting a higher interest rate, applying with a cosigner, or offering a large down payment) getting your credit back on track should always be a priority. Building good credit means better approval terms in the future, including lower interest rates. Figure out where you stand financially and always make sure to compare lenders and loan providers before you apply.
Read more: How to Get a Loan with No Credit History
2. Your income is irregular
Canadians with jobs that aren’t full time, like seasonal employees, freelancers or service providers working under the table, might have trouble getting approved for a car loan because of irregular income. Typically, an income of $1,800 every month before taxes is the minimum requirement to qualify for a car loan in Canada. Broken down, that’s at least $10.50 an hour for 40 hours per week. However, this type of income isn’t available for everyone.
Regarding traditional banks, if a person isn’t making the minimum requirement with a decent credit score and good standing credit history, they might get denied for a car loan because they’re a higher risk factor – how can you make car payments every month if you can’t guarantee a steady monthly income? Applying for a car loan with a lending institution that specializes in subprime lending means that meeting these requirements isn’t necessarily essential. If you’d rather apply with a traditional bank and don’t work full time, saving money for a down payment or adding another employer to your resume is a great way to increase your chances of getting approved.
Read more: 10 Simple Money-Saving Tips for Canadians
3. Submitting the wrong information
Before a lender can approve you for a car loan, they need to see all accurate documentation. If a person fails to send in the right information or fills out something wrong on their application, it could decrease the chance of getting approved. Submitting the correct credentials on time to the lender is a crucial step to getting a smooth and speedy approval.
Canada Drives makes car shopping easy!
Having spent over a decade building a large network of prime and non-prime lending partners (including some of The Big 5 banks), Canada Drives has helped hundreds of thousands of Canadians to find their perfect car, regardless of credit scores.
Even if you have bad credit, Canada Drives can help you find your perfect car—all from the comfort of home. Get pre-approved for free today!