Why was my car loan application rejected?
We can't help you if you've been rejected in your love life, but we'll try and help you with your car loan.
Key takeaways
- Your car loan was likely rejected due to credit history, income, or existing debts. First, verify application accuracy.
- To boost approval chances, improve your credit profile and address any outstanding debts before reapplying.
- Avoid multiple applications after rejection to protect your credit score; consider secured loans or leasing options.
This means understanding why lenders reject applications, and knowing what you should do if it happens to you.
Why are car loans rejected and what you can do about it?
If your loan is rejected, the first thing to do is to make sure you have completed the application correctly and that it wasn’t turned down on a technicality. Double-check that you:
- Filled out all sections of the application completely;
- Provided sufficient details of your income, identity, employment and loan purpose;
- Completed all sections accurately;
- Met all eligibility requirements, such as minimum income amount and purpose of loan.
You may be able to call the lender to find out more information.
If your loan application was completed correctly and still turned down, it was probably because the lender found red flags in one or more of the criteria outlined below. Lenders look at these criteria to determine whether you’re a high-risk (more likely to default) or a low-risk (more likely to pay it back on time) applicant.
Shocker: lenders generally prefer to do business with low-risk applicants, so this is the group you want to be in.
- Your credit history
Your credit history is a strong indication of how likely you are to pay back or default on a loan. It includes details of events such as your outstanding debts, overdue accounts as well as previous credit enquiries. It will also show whether you've missed repayments or declared bankruptcy. A higher credit score means lower risk for lenders.
- If you haven’t already, check your credit score before applying for any loan.
- Financial events such as defaults, bankruptcies repayments and credit enquiries can stay on your credit file for 2 to 7 years, depending on the event.
- Current income and employment history
One of the main factors lenders consider is your current income and state of employment. If you’re not earning enough to pay back the loan, or you've only just started a new job, or you have a less than stable income or employment situation, then you’re more likely to be classed as a high-risk applicant.
- Self-employed people might not be able to provide all the income documentation and might need to opt for a low doc car loan. These may also be an effective option for borrowers for whom it would be detrimental to provide full income and employment details during their application.
- Applying for a used car loan is likely to give you a higher chance of success than a new car loan if income is an issue.
- Other loans or outstanding debt
If you are currently paying back other loans, or have other forms of debt, including credit card debt, then you’re a higher risk applicant.
- Debt consolidation might be a sensible step to think about. This involves combining several smaller debts into one large debt, simplifying payments and potentially providing a preferable repayment scheme. Setting up a single repayment can come with its own costs, so make sure you look into these before making a decision.
Options if you are a high-risk applicant
If you’re having trouble getting a car loan because you’re a high-risk applicant, there are two options that are immediately available.
- Secured car loans: A secured car loan involves using the car itself as collateral, which increases the risk for you and decreases the risk for lenders. It can get you better rates, and means you can get approved for loans that might otherwise have been turned down. However, it also means that if you can’t keep up with repayments, the lender can repossess the car.
- Personal loans: Taking out a personal loan to purchase a car is a further option. There are a variety of personal loans available, and being rejected for a car loan doesn’t mean you’ll be rejected for a personal loan.
How much should you have applied for?
It's a good idea to check how much you can borrow before you apply, because if you apply for too much they may reject you rather than offer you a lower amount.
Your loan details
$
%
$
Overview of your loan
Once the interest only period ends, your estimated repayments will be
(including extra )
Total loan repayments:
Total interest payable:
By making extra monthly repayments of
Your loan term could reduce by:
You could pay less interest, saving:
| Years remaining | Principal remaining |
|---|
Calculator Assumptions: The above calculations are worked out assuming you’re paying off a principal and interest loan where the interest rate remains the same over the life of the loan. The repayment amounts do not take into account any additional fees or charges that may be charged to your loan (e.g. application fees).
Disclaimer: Whilst every effort has been made to ensure the accuracy of this calculator, the results should be used as indication only. They are neither a quote nor a pre-qualification for a loan.
How to avoid being rejected for a car loan again
- Understand what happened. If you have already been rejected for a car loan, call the lender and find out why. This way you can work towards boosting your situation for next time.
- Check eligibility requirements. Make sure you meet the required minimum income, employment status and have the right documentation to be submitted.
- Check credit requirements. There are other requirements around your credit, which may just be that you 'must have good credit'. While most lenders won't disclose what that means, a good aim is to have a credit score above 750.
- Pay off outstanding loans. You will be in a better position if you don't have existing debts you're still paying off. If you need these debts, make sure you're consistently paying them on time.
- Speak to a lender representative. Before you make a formal application you can contact the customer service team to run through their requirements and ask any questions to get a sense of whether your application will succeed.
Finder survey: How many Australians have had their car loan application rejected
| Response | |
|---|---|
| No | 67.57% |
| I have never applied for a car loan | 26.95% |
| Yes | 5.48% |
Source: Finder survey by Pure Profile of 1113 Australians, December 2023
What to do if your car loan is rejected
If your car loan application is rejected, there are three simple steps to take before your next application.
- Ask why. Lenders will typically explain why your loan was declined if you ask them. This can give you an idea of what to do differently next time, and whether the issue is a problem with your finances, or if it’s just something such as not meeting the age requirements.
- Work on building your credit profile. Pay off any outstanding debts and be really on top of meeting your repayments. The better credit score you have, the more likely you are to be approved.
- Wait before you apply again. You can appear as a red flag to lenders if you apply for credit too many times in a row. So leave it a little while to do the above steps before you apply again.
What other options do you have if your car loan application is rejected?
If your car loan application is rejected and you really think you won't be approved if you try again, there are other options for you.
Car leasing
You can lease a car personally or through the company where you work. With leasing a car you pick a term that you want the car for and you'll pay monthly costs to use and run the car. Although there are sometimes options to buy the car at the end, that's not always the case. You can use our calculator to work out the costs associated with leasing a car.
If you work for a company that allows salary sacrificing, you might be able to lease a vehicle. You can do this through fully maintained novated leasing, where the costs of insurance and maintenance also come out of your pre-tax salary. Or you can do this through a non-maintained novated lease.
Car subscriptions
Think Netflix, but for cars. With a car subscription you'll pay a weekly fee which depends on the car you choose and the plan you choose. There are typically no lock-in contracts and you can change the vehicle whenever you like!
Compare car subscriptions against car ownership and car sharing here!
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