Why Was My Car Loan Application Rejected?

Getting a car loan is relatively easy in the Philippines. All you need to do is fill up an application, give your requirements, get contacted by the bank or lender for an interview, and then wait for their verdict. The waiting part is relatively easy; the tricky part here is getting them to say yes. And getting them to give you that proverbial nod really depends on how financially healthy you are.

A stable, consistent income and a positive credit rating are just some of the factors that show them you’re relatively “fit” for a loan. When these factors are not present, then getting a car loan will be more challenging for you.

Still, there’s always hope. You can make the odds work in your favor by understanding why some car loan applications get rejected. That way, you can avoid them or find ways to prepare for them.

## Bad credit report

One of the main reasons why car loans are rejected is unpaid debt. When your financial history showcases a long list of financial mismanagement such as unpaid credit cards and defaulted loans, then banks will quickly assume that you won’t be able to pay off your loan with them as well. Consequently, your chances of getting your car loan approved will be next to 0.

Here are some other “red flags” that they look for when checking your credit report:

- Bankruptcy
- Repossession
- Foreclosure
- Cancelled credit cards due to your inability to pay
- Too many credit card and/or loan applications at the same time
- Lawsuit related to money, such as bounced checks, estafa, and many others

## Negative financial history

This is not only about having bad debt. A negative financial history, such as inconsistent and/or unpaid electricity, telephone, or water bills can also ruin your chances of getting car loan approval.

## Absence of credit

We all know that too much credit card debt is bad, but so is not having any credit at all. Banks look into your credit history to see your risk potential and credit worthiness, and if they can't find anything to use for their analysis, then chances are they will reject your application. This is far better than having a bad credit history, since the latter is more difficult to solve, and often involves years before you can get the trust of banks and other financial institutions to lend you money again.

On the other hand, having no credit history at all can easily be solved by asking a co-signer (with a good credit score) to sign a loan with you. Another good option you can look into is to start building credit by applying for a starter credit cards.

## Insufficient or missing car loan documents

Lenders reject applications with missing and/or incomplete loan documents because they lack transparency. Specifically, they indicate the following: 1) you’re hiding something; or 2) you’re being dishonest with your information.

Lenders get easily suspicious when loan applicants intentionally withhold information from them. In their opinion, there’s no reason why you shouldn’t disclose the required information they need if you don’t have anything to hide.

## Incorrect information

Another cause of car loan rejection is by giving incorrect information in your application. Keep in mind that lenders do their own investigation when they process your loan application.

Details are extremely important here, and they look at things in a straightforward way. An inconsistent or wrong phone number or home address number is enough to keep them suspicious and reject your car loan application. Some banks or lenders also deny loan applications when your number is not reachable.

## Huge loan request

You might not be aware of this, but there is a limit to how much money you can borrow from banks. Generally, they allow between P300, 000 to P1 million for loans, and the specific amount they’ll lend you will depend on your income plus the price of the car you plan on buying.

## Inconsistent employment history

Some banks are strict when it comes to your job history, so they tend to reject an applicant who doesn't have a stable source of income. Many require you to be in the same company for 2 or more years to qualify for a car loan. However, not all are as strict, and some would accept your loan application if they see that you have stayed in the same line of work for a long time.

## Requesting more than your collateral

If you think that the best course is to have your house or (another) car as collateral, then you need to make sure that their value is more than -- or equal -- to the car loan value that you're requesting. So if you plan to get a loan for a car that’s priced at around P1.5 million, then your collateral’s value should be worth P1.5 million or more. Otherwise, you'll get a significantly less loan amount than what you requested.

Getting your car loan approved is not as easy as it may appear to be. Before you get a loan, make sure that you have completed all the requirements needed by your bank and lender. Also make sure that all the loose ends have been taken care of. That way, your chances of getting your car loan approved is much higher.