Sometimes, poor credit is not the only reason why car loans don’t get approved. There are many factors that could affect the approval process for car loans for bad credit, and knowing what these factors are can help ensure that you’re completely prepared for your submitting your car loan application.
This way, you have a greater chance of getting the loan amount you need, at interest rates that are more favorable for your budget.
Documentation is an important part of the application for car loans for bad credit.
Financial institutions will typically require you to present proof of identity, proof of income, proof of residence, vehicle information, and auto insurance information.
You’ll have to present all these documents on top of having your credit reports checked.
If you fail to submit any of the required documents to the lender, the lender can’t process your application and approve your bad credit auto loan.
How to fix it: The easiest way to avoid getting your car loan rejected because of missing documents is to give yourself enough time to prepare these documents beforehand.
Many of these documents are easy to obtain, so it should be easy for you to comply with these requirements.
Once lenders have all the documents they need, they’ll find it easier to determine factors like the loan term and the interest rate.
Believe it or not, it can be easy for you to provide inaccurate information as a potential car buyer.
This is especially true if you’re in a hurry to fill out loan applications and submit them online. You may end up providing the wrong information in terms of your address and other personal details.
In such cases, your application simply doesn’t go through and isn’t processed by the lender. Of course, this results in loans with bad credit not being approved.
How to fix it: These errors are easy to fix as well. It’s best to take time to double or triple-check the information you enter into online forms before you submit them.
Taking the extra time may seem like a pain, but it will save you the hassle of having to deal with a rejected car loan application and repeating the process more than once.
Timing is an important factor to consider if you want to use auto financing to buy a car. The lender takes into account your current situation when considering approval for your car loan.
For instance, you may be new to your job and are currently on a trial or probation period. Since there’s no guarantee that you’ll keep your job past the probation period, the lender or financial institution may be more inclined to defer your car loan.
Another situation that can negatively affect the approval process for your car loan would be a simultaneous loan application. You may have just applied for another loan, and recent credit checks and the added debt may make you seem like a bigger financial risk for the lender or financial institution.
This leads to a loan that isn’t approved.
How to fix it: It’s best to ensure that you are in the most favorable circumstances possible for making monthly payments and dealing with the higher annual percentage rates of a car loan for people with bad credit.
Wait things out until you have stable employment to increase your chances of your loan getting approved. If you really need to make multiple loan applications, you might want to consider cutting down your debt with lump sum payments.
You can also get a co-signer who can vouch for you and take up the monthly payments when you become unable to pay.
Your income is one of the biggest factors that affect the financing options available to you as well as the approval process for your bad credit auto loan.
Just by looking at your financial situation and your employment circumstances, lenders can more or less gauge whether you can regularly make on-time payments and finish out the loan term.
For instance, self-employed individuals and people who work on commission may find it more difficult to get their car loans approved simply because they don’t have a steady stream of income.
What matters to lenders and financial institutions is that you regularly receive a sufficient amount of money to make loan payments each month. This makes it more likely even for loans with bad credit to be approved.
How to fix it: This is a little trickier to fix because there is no easy solution to an irregular income because of your employment circumstances.
One of the best things you can do is to find an alternative fix by getting a co-signer for your loan. A co-signer can provide additional assurance that regular loan payments will be made even if your income becomes unstable.
When it comes to applying for a bad credit auto loan, it’s best to set realistic expectations.
Asking for a loan amount that’s too high for your financial situation may cause a lender to think twice about approving your car loan. For instance, asking for a loan amount of $100,000 when you’re making only $1200 each month and have poor credit is highly unrealistic.
Wanting to buy an expensive when you have bad credit will make you seem like a greater risk, making loan denial more likely.
How to fix it: Set a lower loan amount. You can always do more research and shop for more vehicle options.
Go for a more sensible car with a lower price tag and have more realistic expectations of your budget and financial capabilities.
This will not only make your loan more likely to be approved but also help you improve your credit rating and financial situation in the future.
The bad news is that the major credit bureaus won’t always get your credit report right. Details on risk factors such as bankruptcy and debt might not be updated, so these will still show up on your credit report and negatively affect your FICO score.
Lenders are likely to take these erroneous reports at face value and decide that your bad credit car loan is too risky to approve.
As a result, you don’t get the car you need. You may not even know that these errors exist until your loan application has been denied, since you aren’t required to provide a physical copy of your credit report.
How to fix it: Make it a habit to obtain a copy of your credit report at least once a year. Better yet, get a credit report at least three months before you submit your loan application.
This way, you can see your credit history for yourself and have it corrected when needed. You can work on boosting your credit rating, too. Ensuring that your credit report is updated is particularly important if you’ve been working towards improving your credit score.