Understanding the reasons why your car loan was declined

Understanding the reasons why your car loan was declined

Posted on September 28, 2022

If you recently applied for a car loan and it was declined, you should not take it personally. No one likes to be rejected; it is part of the human condition to want to be accepted, and it is what allowed us to thrive as a species.

We are going to take a deep dive into the world of auto loans in Canada and how they are underwritten.

By the time you finish reading this, you will be armed with the information you need to make a better-informed car buying decision.

Most car loans decisions are made by computers and not humans

A few years ago, when you applied for a car loan, a person would go over the details of the application and make a determination on whether or not to approve the loan.

This decision was based on the information on the application but also the experience of the person reviewing the application.

This process was labor intensive, and lenders were constantly looking for efficiencies, so they turned to artificial intelligence (AI) to help streamline this process.

Now when you fill out an application, a specialized piece of software looks at the information on your application and then refers to the underwriting criteria set by the lender to generate either an approval or rejection.

This means that if you input any information that did not conform to the underwriting criteria, even if it was by mistake, your application would be automatically rejected!

Lenders will never divulge their precise underwriting criteria, so you are flying blind somewhat.

What you need to understand when it comes to applying for conventional car loans

The first thing that the lender is going to look at is your credit report, specifically to see if there are any vehicle repossessions, if there are repossessions on your credit report, it will automatically decline your application.

After looking for repossessions, if there aren’t any, the software will look at your credit score to see if you meet the minimum threshold to qualify for a conventional car loan.

Generally speaking, your credit score should be over 600 if you want to access a conventional car loan.

If your score is below 600, you can get a loan, but you will need to go to a dealership that specializes in helping clients with credit challenges.

Proof of income

If your credit score is high enough, the software will provide conditional approval for the car loan.

The loan is conditional on you providing documentation showing you have sufficient income.

You can substantiate this request by providing copies of your bank statements where your payroll is deposited and your latest income tax assessments.

If you are not able to furnish these documents, you will not be able to get a car loan even if you have a very high credit score.

There is a variety of reasons that your car loan application could be declined, but you shouldn’t let it dissuade you from reaching your goal of buying a car; contact your local car dealership, and they will be able to help you get approved for a new car loan.

Contact Unique Chrysler for help, advice and competitive car finance and leasing.