Reasons for Your Vehicle Loan Application Rejection

In order to obtain a vehicle loan, you must complete a number of procedures. Getting a car loan can be difficult at times, and there are a variety of reasons why your used car loan application may be denied. You can, however, take particular efforts to improve your chances of future application approval. 

So, why might your vehicle loan application be denied, and what can you do to avoid it? Here are a few reasons for loan rejection, as well as what you can do to guarantee that you get the best loan possible.

Reasons for vehicle loan application rejection

Poor credit score

One of the most common causes for that rejection letter is having a poor credit or CIBIL score. The lender is informed of your creditworthiness via your CIBIL score. The primary concept followed by banks is that the higher a borrower’s CIBIL score is, the less likely they are to default on their EMIs. You can use a vehicle loan calculator to evaluate the EMI.

The opposite is, of course, equally true. If your CIBIL score is less than 600, your chances of getting a car loan decrease. A credit score of 600 to 750 may qualify you for an auto loan, but at a somewhat higher rate of interest. A credit score of 750 or above, on the other hand, is regarded as good, and a borrower with this score will almost surely be approved for a car loan with favorable terms.

Insufficient income

By looking at your monthly income and employment stability, a lender can determine how much of a loan you can get and repay. A lender will frequently turn down a borrower’s application simply because the loan amount exceeds the borrower’s repayment capacity. 

To avoid this issue, ensure you have a stable source of income. Show documentation such as IT returns, balance sheets, and other proof of a steady income if you are self-employed or a freelancer. Finally, do not take out more debt than you can repay.

Multiple loans

If you took out many loans in the preceding year, regardless of how well you paid them back, lenders will not give you priority. Despite having a good credit history, you will be classified as a high-risk borrower with a high risk of default due to your multiple loans. Even if you have an excellent CIBIL score, your chances of getting a loan declined in this situation are significant.

Prior to applying for a car loan, consolidate and pay off your debts. As a result, you’ll be able to take sensible risks while also planning for a brighter future.

Incomplete paperwork

Some banks have relaxed their auto loan eligibility criteria and documentation requirements in recent years. But  you should still gather them.  This will help you to improve your chances of approval. As a result, speak with your lender and compile a list of all the documents you’ll require.

When completing the paperwork, it is a good idea to get the assistance. Assistance of friends or family members who have recently taken out a car loan will help you to get information. Additionally, go over the bank’s website. It is to make sure you understand what documents you’ll need to provide during the loan approval process.

Credit card utilization ratio

A high credit card utilization ratio can hurt your chances of getting approved and lower your credit score. When you’re not looking for a car loan, maxing out your credit limit isn’t an issue. However, if you want to get vehicle financing, make sure you have a good credit card use ratio a few months before applying.

To ensure a low credit card utilization ratio, make a budget to eliminate excessive spending. Then request a higher credit limit, and make sure you pay your bills on time.