How to Get Approved for a Car Loan After You Have Been Rejected

June 21, 2018

There are a combination of factors that can lead to someone being rejected for a Car Loan. Canada Drives can get you approved.

You applied for a car loan, and you’ve just found out that you have been denied. After having done your research, some planning, you made the decision to buy a car. Why were you rejected? The answers vary, and they do have solutions, so after this initial setback, let’s have a look at the varying causes, and point you towards solutions.

How much you earn

The question of your income is key, and not just in terms of your debt load. The proportion of your income to your overall expenses (housing, debts, etc.), is part of the formula used to determine how much you can borrow, or even if you can borrow. A monthly income of $1800 is a commonly used, if unofficial, minimum starting point for income. Make sure you’ve included all sources of income on your application. If you’re working part-time, look for an opportunity to increase your hours.

How long you’ve been working

Another setback with your loan approval, could be the length of your current employment. If you’ve just started a new job, be sure to include your previous work history. If your new job is still probationary, a short wait may solve the loan problem.

How much you currently owe

Your current debt load impacts your ability to, and, how much you can borrow, compared to your income.

Information about how much debt you are carrying comes from your application, and what is reported from the credit bureau (In Canada: Equifax and TransUnion). It’s a good idea to get your free credit “reports” (not “ratings” as those are not free), before applying for, or, after you’ve been denied for a loan.

Click here to get your credit report from Equifiax.

For TransUnion, click here.

(This will not impact your credit report negatively. You’ll have a chance to correct errors and make updates.)

You can try to pay one or more of the debts and show your lender.

How much credit you have access to

If you have a lot of credit available (on credit cards and/or lines of credit), that helps your credit score, so avoid maxing it all out. If it’s already maxed out, cautiously consider adding another source of credit that you won’t use.

How much you’re trying to borrow

Another possible reason for car-loan rejection is the dollar amount. Ask your lender if lowering your borrowing amount would solve the problem. If they say yes, you can explore how to achieve that: buy a different car, provide a larger deposit, choose fewer add-ons, negotiate the terms (duration of the loan).

If you try to reduce your loan amount by looking at other cars, we caution you to first check the trustworthiness of a car dealer. An unscrupulous dealer may try to sell you a car without disclosing serious problems that they are legally bound to do.

Check our list below for info about your province or territory:

  • British Columbia: VSABC
  • Alberta: AMVIC
  • Manitoba: MVAID
  • Ontario: OMVIC
  • Quebec: Consumer affairs office
  • Nova Scotia: Consumer affairs office
  • Saskatchewan: Consumer affairs office
  • New Brunswick: Consumer affairs office
  • PEI: Consumer affairs office
  • Newfoundland & Labrador: Consumer affairs office
  • Nunavut: Consumer affairs office
  • Yukon: Consumer affairs office
  • NWT: Consumer affairs office
  • How else can you improve your credit score

    If you’ve made many recent credit requests shopping for your car loan, you may have inadvertently reduced your credit score. Both credit bureaus will cluster mortgage and car-loan applications (not credit cards), to minimise the impact on your credit score, as long as they were within 14 to 45 days.

    If you paid an old outstanding debt, whether recently or not, it may still appear on your credit report, and may even erroneously show as still being unpaid. If it’s showing as paid, you should ask the credit bureau if they are willing to remove it. Meanwhile, the lender may be satisfied by seeing proof from you, that it’s paid.

    If you do have any unpaid outstanding debt, the quickest fix is to reach out to that lender, arrange for a repayment plan (if you can’t pay them right away), and show evidence of this to your car-loan lender.

    If you’ve recently made credit applications for other kinds of credit, each one registers as a “hard inquiry” that will impact your credit score, and can stay on your credit report for up to 36 months.

    If you’ve received a pre-approved offer for credit, that’s better for your credit score as it’s only a “soft inquiry” on your credit report, and as long as you don’t max it out.

    Maybe the opposite has happened. You’ve let an old generous credit card or credit line become so inactive, that the lender has closed it, thereby taking away a great addition to your credit score.

    You may have very little credit history, so get the help of a lender to establish yourself before being denied for a loan.

    Click here for more info on how to help yourself qualify for a loan, if you have a poor credit rating.

    Other causes

    Here are a few less common situations causing loan rejection:

  • The nature of your employment and/or the source of your income, may affect the perception of your income stability.
  • Lenders see greater risk with income derived from free-lance, and/or self-employment.
  • Part-time work may be perceived as temporary work.
  • You may also have difficulty borrowing if your income is mainly from a social benefits program.
  • Other fixes

    Getting a co-signer might turn your rejection into approval, as it lessens the risk to the lender.

    Canada Drives is here for you. We are proud to say that we have worked with thousands of satisfied customers, in many different scenarios, to help them get the car they need.

    Ready for a new car? Visit Canada Drives because regardless of your credit score, Canada Drives can help you get driving through our fast , easy and secure online application. Click here to apply today!

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