If you’ve been denied for an auto loan, there are steps you can take to ensure you’ll be approved in the future: check your credit report, set a budget, shop for lenders, and keep your documents organized to show lenders that you’re a responsible borrower.
Thousands of people apply for auto loans every day in Canada, but not everyone gets approved. Being denied for an auto loan is a frustrating experience that often comes with negative thinking, which only makes the situation worse. There are many factors a lender considers before approving an applicant for a car loan. It’s possible a person may be denied approval for an auto loan due to their current job status, errors on a credit report that shows false information to creditors, not being able to provide essential documentation to lenders like proof of income or a valid driver’s license, providing the wrong information on your auto loan agreement, and not having a well established credit file because you’re either new to the country or young and just starting to grow your credit history.
Whatever the reason that you’ve been denied, it’s important to remember that just because you weren’t approved for an auto loan now doesn’t mean that you’ll never be. There are steps that you can start taking right now to ensure that the next time you apply for a loan you’ll have a better chance for a loan approval with affordable payment and interest rates. Having a less than perfect credit score can impact whether you’ll be approved for an auto loan or not; however, regardless of your credit score, these four tips can help improve your chances of being approved for an auto loan in the future.
1. Check Your Credit Report
Request a copy of your credit report from Canada’s major credit bureaus, Equifax and TransUnion to understand what to expect before you start applying for auto loans. Entering the car buying process with a good grip on your credit history and overall report will help minimize the auto financing stress as you begin to receive approvals from lenders about what rates and terms you’re offered.
Requesting a copy of your credit report will also help you catch any errors that the bureaus may have made or any fraudulent activity on your account. Catching mistakes on your credit report, regardless of how big or small they may be, will help raise your credit score and show lenders how responsible you are as a borrower. If you do spot any errors on your credit report, call the bureaus as soon as you can to ensure that it’s been removed before you begin shopping for auto financing. If you have no errors on your account but notice that your score and history aren’t favourable, it might be worth taking a few months to rebuild your credit score and fix your credit history before you begin the car buying process. Otherwise, you might be paying a lot more monthly and in fees and rates if you enter the process with a low score and poor history.
2. Shop Lenders
Applying for auto financing through more than one lender might seem time consuming, however it’s well worth it. There are multiple places where a person in Canada can apply for auto financing – large banks, credit unions, and online lenders are just some of the establishments available for people who are looking for the best rates available. Even if you’re sure of collecting auto financing from a specific place, it’s a great idea to still shop around as hard credit inquiries to your report when shopping for auto financing are within a 14-day window, meaning you have two weeks to apply for auto financing without it wreaking havoc on your score.
When comparing rates from different locations, determine the differences in annual percentage rate (APR), total length of the loan, and any taxes or fees that are tacked onto the auto loan. These are all key financial terms that you should compare before choosing what offer is best for you.
3. Set a Budget
Car loan lenders want to see that you have a steady income and enough money saved to consistently pay off the loan over time. With past payment success and a solid amount of money in your bank account, you can improve your odds of approval with great rates and monthly payments as lenders won’t view you as a risk factor. A down payment is an option for those that don’t have the best credit but a good amount of money saved, as paying the lender upfront for a part of the loan will show them that you can manage your money responsibly – this will also help to lower monthly payments and interest rates too. Before you enter the car financing process and while you are working on your savings, it’s a good idea to have an additional 10 per cent saved that you can use for taxes and fees. The Canada Drives loan calculator can help you understand what you can expect for monthly payments given your current credit rating, length of loan you want and amount you’re willing to pay for it. Once you’re approved for an auto loan, the number one goal is to ensure that you can make your monthly payments on time and in full each month, so ensure that you’re comfortable with the loan agreements and where your budget is before you sign the dotted line.
4. Get Organized
In order to prove yourself creditworthy, it is important to have some vital documents pulled together before you seek out your loan. There is a list of items you will likely be required to show to the loan provider or auto credit source. Some of these might include proof of income via bank statements, employment history, driver’s license, current address, and contact information. Keeping organized throughout the entire auto loan application process will make it easier for both yourself and the lender. A flawless transaction with a lender will show them that you’re organized, take loan commitments seriously, and are prepared to manage your auto loan in a responsible manner.
Canada Drives works with hundreds of Canadians every day, ensuring that they get good quality vehicles with ease and simplicity, regardless of their credit score. Getting approved for auto financing with bad credit can take several days, and even weeks, but Canada Drives’ dealer partners work hard to get applicants the best vehicle and financing options fast. If you need an affordable vehicle and want to rebuild your credit, apply with Canada Drives for free today and learn more!