While getting approval for a car loan is easier for some people, the process seems to be tedious and complex for many. Though there are multiple reasons why an applicant faces rejection after applying for a car loan, the most common ones are related to the credit score and history of the applicant. Apart from the credit history, there are some other loan eligibility factors that most of the borrowers don’t know and when their application gets rejected they get thoroughly disappointed. Here are the most common reasons for car loan application denial:
Bad credit score: The credit score of an individual is decided by the credit organisation on the basis of his/her credit history. This score is usually a number ranging from 300 to 850 which helps the lenders assess the creditworthiness of an applicant. After evaluating and analysing the past credit history/record of an individual, the credit organisation attribute this score. His/her existing credits, outstanding dues, and the consistency of EMI payments are the vital factors which decide the credit score. While individuals with clean and consistent credit history are given high credit score, persons with inconsistent credit profile are rated badly by CIBIL. Individuals with a bad credit score below 700 are at high risk of denial of their car loan application.
Insufficient income– Banks need to make sure that the borrower has an adequate salary that will cover up month to month EMIs in future. If the income of the applicant is sufficient enough to permit monthly EMIs along with work stability, then the loan request of the applicant might not be denied by the lenders. However, applicants with insufficient income are considered to be ineligible for a loan and the request is denied. This is the reason why it is extremely important for you to have sufficient income to pay back the car loan amount within the specified loan tenure without any hassle.
Debt-to-income ratio: While approving the loan application of an applicant, the lenders consider the debt-to-income ratio of the borrower to decide whether the applicant will be a risky component or not. Typically, the lenders prefer applicants having a debt-to-income ratio of less than 40% of their income. This is why you should pay off all your outstanding dues and debts before applying for a car loan.
Job and residential instability: The employment and job history of the applicant is a vital factor which decides the approval/rejection of a car loan application. Applicants who frequently change their job or residence are considered to be unstable in their life. In such cases, the lenders don’t feel confident to offer the applicant with a car loan as they think he/she is not stable enough to make consistent and timely payments of the monthly installments. Hence, to avoid rejection of your car loan application make an effort to be stable in your job and residence for at least 2-3 years before applying for the loan.
Insufficient/inaccurate information– Providing inaccurate or insufficient information can lead to rejection of a car loan application. While offering a loan the lender wants to know all the details about the applicant to know about his stability and worthiness for the loan. Hence, it is very important for the lender to get the accurate details of the applicant. In case of incomplete or incorrect information, the lender might reject the loan application. The proof of information and original documents are of utmost importance for getting a car loan approval. All the information that you provide to the lender should be accurate and verifiable as per the documents to avoid rejection of loan.
Demanding too much-Sometimes asking for too much from a car loan deal can also lead to its rejection. The lenders consider everything starting from the applicant’s age, income, credit report/history, job stability, and personal details while approving a loan. If you apply for a loan amount that is beyond your repayment capacity, then the lender may reject your car loan application. For instance, the loan request of an applicant earning Rs.30,000 per month for buying a luxury sedan worth Rs.70 lakh will not be approved by the lender as they will consider it as an extremely risky customer to invest in.
So, these are some of the reasons which can result in rejection of a car loan application. The lenders are quite strict about the requirements and not meeting any of them can lead to the rejection of your loan request. However, that doesn’t mean that there is no way to get an approval of your loan request. You can check tips on improving your car loan eligibility in order to get a quick loan approval to purchase your dream car.