Top 5 Reasons of Car Loan Rejection

It’s a lovely feeling to get what you desire in a blink of an eye. Isn’t it? We wish this was true when it comes to owning your dream car as well. But, given the fact that not all of us have a pocket deep enough to buy our dream car on an outright (one-time cash) payment, most of us depend on car loans for the same. It is very important to do all the homework before applying for a car loan in order to  get through  the whole process in one shot. With an increase in vehicle sales every year, there is a substantial jump in terms of car loans as well.

The car loan process is relatively very simple in the Philippines as compared to other countries. A simple car loan application, certain basic documents, a minor down payment and you are good to go in your dream machine. But, despite this fact, there are a few unfortunate consumers whose loan applications are rejected for reasons as simple as a signature mismatch in the application form to colossal reasons like a fraud or misrepresentation of information. So, let’s analyze some top reasons of a car rejection to ensure you skip these roadblocks on your way to own your desired machine.

1. Incorrect, Incomplete or False information and not responding to verification calls

The information that you provide to the financial institutions is very vital and should be absolutely true and error free. Everything that you state is used by the bank officials to undermine your credibility, loan repaying ability and authenticity of your application. A simple typo error in the zip code can land you in trouble. The bank officials will call you on the contact number provided in your application and will pay you a visit for the address verification process. If you don't answer the verification calls and are unavailable at your postal address then you are inviting trouble and chances of rejection get increased. 

What to do?

Get out of the habit of avoiding calls from unknown numbers at least in the phase of your loan application. Similarly, you expecting a guest at home mode should be turned ON.

2. Incomplete or insufficient documentation

Let’s admit this, we all have faced this situation at some point in time of our lives where we think we have attached all the required documents along our application (be it a loan, mobile connection, college admission or any other application) and to our utter surprise we are bombarded with one or the other requirement. Although the list of documents required for a car loan is relatively small, but we still tend to miss out something at times and it eventually leads to a rejection.

What to do?

Always go through the checklist of required documents and ensure you tick off everything required.

3. Negative credit record and poor financial history

It's a sin to have a bad credit history and a disappointing financial status if you are applying for a car loan. The lending companies very sharply check your financial history and an unsettled credit card payment overdue or a loan default can put a big cross on your loan application. If you are not financially stable currently than chances of getting a loan approved are very dim. And, don’t even think that you can hide your old mistakes from these companies. They manage a huge database which has every information from all your credit card swipes to your previous defaulted loans.

What to do?

It simply doesn’t mean that you cannot get a loan if you have a credit card or a running loan. If your credit card payments are regular and you are not a loan defaulter, you are fine. Ensure that you settle all your previous overdue (credit cards & loan overdue) before applying for a car loan. Even if you have an existing loan it does not matter. The lenders will be more concerned about the regularity of the payments over your debts rather than the actual debt.

4. Unstable job history

All the financial institutions judge an application based on two simple question. What is the repaying power of the applicant and what is the flow of income? So, if you shuffle your jobs frequently then this leaves a very negative impact in terms of your financial stability and regular flow of income. For this very reason they check the tenure in your current organisation and if it is less than 6 months then there is every possibility that your loan application will get rejected. 

What to do?

It’s not really a good idea to add expenses when you are that tender in your new job. Better you wait and settle down in your current job for a substantial period of a year or two and then think of buying a new car. This will not only ensure financial stability but also the potential to bear this expense.

5. Collateral value not equivalent to the desired loan amount

One can either opt for a secured loan or an unsecured loan. If you opt for an unsecured loan you don't need to provide a collateral for security but the interest rate is very high for such kind of loans. Thus, most of the applicants opt for the secured loans in which they need to provide a collateral to get a loan. The collateral can be a property, vehicle etc. whose valuation should be equal or more than the loan amount. Now, don’t expect the financial companies to provide a loan amount equivalent to 100% of your collateral. So, if your collateral value is less than the desired loan amount, your shot at the loan will surely be off target.

What to do?

It’s best to value the asset that you will provide as a collateral before hand and always use a collateral whose value is reasonably more than the loan amount.

These reasons are not the only reasons for a car loan rejection. There can be many other reasons like negative area, an unsettled court case, negative customer profile etc. which can act as speed breakers in your car loan drive. But the ones listed above are surely the most common reasons.

Also Read : All you wanted to know about car loans