There is always a time in our lives when many of us need a loan for one thing or another. Whether it is to buy a car, a house or student loans, you will always need to borrow some money. With the car prices skyrocketing and the constant increase in living costs, consumers are fearful of being turned down for credit. In such a case, you need an auto loan to finance your vehicle.
An auto loan or car loan is a sum of money that allows a borrower to purchase a vehicle in monthly payments instead of making full payment upfront. These loans include fees and taxes that add to the total amount of loan.
Scoring a car loan now is easier than ever. However, it is not all smiles and sunshine. There is always a chance your application may get rejected which can end up as a heart-breaking experience. A lender takes into account many factors before approving your car loan. These include your credit report, current job status, necessary documents like proof of income or valid driving license and many other aspects. Whatever the reason for rejection may be, it is pertinent to know that just because you weren’t approved for a car loan now, does not mean that you will never get one.
There are ways to increase the chances of getting a loan approved. Following these tips, you can turn the odds in your favor and secure a loan at a much better rate.
One of the ways to improve the odds of scoring a car loan is to check your credit report and know your credit rating. Your credit report contains information about you which helps the lender to evaluate your future performance based on your past borrowing behavior. The report includes:
You need to check your credit report for any erroneous information. You can access this information for free at places like Equifax, Experian, and Noddle. The graph below depicts a breakdown of how myFico calculates your credit score.
If there is something that is wrong or shouldn’t be there in the report, you need to rectify it before you apply for an auto loan. Lenders will use your credit report to calculate your credit score and determine whether they should approve your loan or not.
1.Show consistency in your applications:
Lenders use different tools to spot fraudulent applications. So, inconsistencies between application forms can result in rejection of your request. Therefore, it is advised to use the same job title, address or contact number on each application you send to different institutions to minimize the risk of being rejected.
2. Never miss any credit repayments:
Missing or being late on credit repayments can cause problems that will hurt you for years. Defaults in the past can result in the rejection of your application. So, repay all your debts by direct debit and then pay manually in time each month. The key is to show punctuality and persistence which will guarantee the lender that you will never be late with the basic payments.
3.Have an initial deposit:
Putting down a big initial deposit on a car can have a positive impact on your application. The bigger the down payment for the vehicle, the lesser you have to borrow from the lender and consequently, lesser monthly installments. Saving up for a deposit can be hard, but it makes you look like a financially responsible person and can considerably turn the odds in your favor.
4.Trade-in your used car:
Most of us buy a new car because we want to upgrade an old one. If you are in such a situation, you need to get a fair value for your used vehicle and deposit the money on the new one. Use any of the online free car valuation websites to evaluate your car and sell it at a decent price. This will leave you with money in hand which you can use to finance the new vehicle. Wherever the money for a big deposit comes from, the lender will have no reason to reject your auto loan application form.
5.Show proof of employment:
Even if you have a massive saving and zero outstanding debt but are currently unemployed, your auto loan application might still get rejected. Lenders want to know whether or not you have stable financial means to pay back your car loan during the allotted time. A permanent employment status ensures the lenders that you will have a source of income for the entire period of the loan. Hence, chances are that they might approve your case. Additionally, it is prudent to avoid applying during the probationary period as it may also result in rejection of your application.
If you think your credit score is not enough to get your loan application approved, you can look into some unconventional ways to ensure the lender that you are a good opportunity. You can get references and provide proofs that you pay your rent and utility charges including phone, gas, and electricity bills in a timely manner. You can also get someone who can guarantee the loan for you.
In case your partner has a better credit score, you can opt for a joint application. This will increase the chances for your application being approved as the two of you will be responsible for repaying the car finance on time.
The Bottom Line:
The current vehicle market space is highly competitive, and manufacturers always come up with attractive offers for the customers. You have to be patient and wait for a deal that fits your budget. Pay attention to how the credit scoring works; manage it properly by using the advice given above to make the best financial decision.
About the Author:
Alma Causey is a Freelance writer by day and sports fan by night. She writes about tech education and health related issues. Live simply, give generously, watch football and a technology lover.