it can be a painful experience if your car loan application is rejected by the lender. but you should not lose hope, you can look at your application carefully to analyze why your loan was rejected and then take the steps required to increase the approval odds for your future loan applications. here are some important guidelines that will help you find your next step in case your loan gets denied:
identify why your car loan was denied
it's very important that you identify the correct reasons for your loan rejection before re-applying for a fresh loan. your loan might have been denied because -
in case you could not identify the reason for your loan rejection, you can directly contact the lender and ask the reason. as a consumer, you have the right to ask your lender why your application was rejected, as long as you ask within 60 days. once your lender provides you with a specific reason for your loan denial, you can use the same to help fix any issues.
take steps to improve your credit score
a negative or low credit score is one of the main reasons for the rejection of loan applications. you can get your credit report from any of the credit rating agencies - CIBIL, Experian, Equifax, and Transunion. if your credit report has negative markings, such as late payment or default on payments, this can become a reason for your loan denial. you can check your credit score and credit report for free on CRED through the link provided below
take steps to improve your loan eligibility
your loan eligibility depends on a lot of factors, but credit score and debt-to-income ratio are the two key factors lenders consider when they review your loan application. low credit scores are known to be one of the main reasons for loan application denials. the credit score ranges between 300 to 900. a credit score of 670 and above is considered good and can increase your chances of getting loan approval. your debt-to-income ratio is equally important for the loan applications as it shows your ability to repay the new loan while handling your current debt load. the debt-to-income ratio is calculated by dividing your current monthly debt burden by your monthly gross income.
important tips to increase your loan approval odds
here are some of the important tips that can help you increase your loan application approval odds:
prequalify with other lenders
the loan eligibility criteria differ from lender to lender, hence you should try to prequalify with other lenders. when you prequalify, the lender shows the loan amount and interest rate you will get if your application is successful. you can use this data to negotiate with other lenders.
you can increase your chances of loan approval by providing collateral (something of value) that secures the loan. you get a secured loan by providing collateral such as - cash deposit, car title, or savings account. in case of loan default, the lender has the right to seize your collateral, and hence it may be more willing to approve your loan.
pay down your debt
if you can pay down some of your debt, it will significantly improve your debt-to-income ratio and therefore your chances of getting loan approval will also increase. try to pay off your smallest debt first, and also make minimum due payments toward the rest of your debt.
increase your down payment amount
in case you are taking a car loan, you can choose to make a larger down payment, which will make the loan less risky for the lender to take on.
request a lower car loan amount
in some cases, the lender may reject the loan because you have requested more money than you can afford to repay. if this is the reason for your car loan denial, you can request the lender to approve you for a lower loan amount. you can use the help of a car loan calculator to estimate the loan EMI and how you are going to fit it into your monthly budget.
use CRED car loan calculator