Hitting the “submit” button on an auto loan application can feel exciting (and maybe a little nerve-wracking). However, that excitement can quickly turn into confusion and frustration if you find out your loan application was not approved. Although this can be discouraging, you’re not alone – and it doesn’t mean you won’t qualify for one in the future. Here’s what to do before applying for an auto loan, to help increase your chances of getting approved and in the driver’s seat of your new wheels.

Reasons Your Auto Loan Application May Have Been Denied?

Below are some common reasons why car loans may not get approved.

• Low credit score, poor credit history, and/or limited credit history.
• High debt-to-income ratio.
• Income below the minimum requirement set by the lender.
• Irregular employment or a recent job change.
• Incomplete or inaccurate application.

Step 1: Find Out the Reason You Weren’t Approved

If you were just denied, take a step back and wait to receive a letter from your lender. According to federal law, lenders must send you a letter when your auto loan application is declined (or, if it is approved on less favorable terms than you requested). You can expect this letter to tell you the reasons that drove the decision and next steps. Review the reasons in the letter – making improvements in these areas can help boost your future approval odds. Don’t hesitate to contact the lender if you have any questions about the information within letter, or if you haven’t received one.

Step 2: Review Your Credit Report

It’s generally recommended to review your credit report before applying for a loan. Your credit report is a key factor that lenders consider when making a lending decision – and it’s in your best interest to know the information they are basing the decision on. You’ll want to review your credit report to ensure all the information is accurate and up to date. It isn’t unheard of to find mistakes on your credit report – such as incorrect balances or credit limits, or accounts that were inaccurately reported as late or delinquent.

Any of the above errors could contribute to a loan denial, and you would want to have them corrected before applying again. Understanding your credit score and report can also help you make more informed financial decisions. You’ll also want to be aware that different lenders have different requirements and restrictions.

Did you know you are entitled to a free copy of your credit report every 12 months from each credit reporting bureau? Visit AnnualCreditReport.Com to request your free copy today.

Step 3: Improve Your Credit Score or History

Improving your credit score is always beneficial – it increases approval odds for loans and credit cards, and may even qualify you for better interest rates on those products. You can improve your credit score by making on-time payments, lowering any outstanding balances on credit cards, and avoiding applying for new credit – especially prior to applying for an auto loan again.

There are certain actions that can positively impact your credit score quicker than others. For example, the result of paying down balances can be seen in as little as a few months, whereas a late payment can have a negative impact on your score for longer.

If you have limited credit history, lenders might not have enough information about you to determine your likelihood to repay your auto loan – which could also lead to a denial. If you have limited credit history, consider applying with a co-signer to help increase your chances of loan approval. We’ll cover this in the next step.

Step 4: Consider Adding a Co-Signer

A co-signer is someone who applies for a loan with you and agrees to make the payments if you are unable to. This provides more reassurance to the lender that the loan will be repaid. Your chances of qualifying for a loan might improve if you select a co-signer with a strong credit score, long credit history, and sufficient income. You’ll want to be sure the co-signer is someone you trust, and that you both fully understand the responsibilities and risks up front.

Step 5: Consider Saving for a Larger Down Payment

Consider saving for a larger down payment if your financial situation allows for it. This can improve your approval odds by reducing the amount of money the lender will need to lend to you. In the end, by putting more money down you’ll likely pay less interest over the life of the loan.

Step 6: Explore Other Vehicle Financing Options

If you only applied for an auto loan through one lender such as a large national bank, consider other options – like your local credit union or a community bank. You might find more flexibility and more personalized lending decisions.

If you live, work, worship, volunteer, or attend school in Monmouth or Ocean Counties and are exploring your auto loan options – visit one of our local branches or call us to make an appointment at 732.312.1500.*

If you had your eyes set on driving off with a new or new-to-you vehicle and you recently received an auto loan denial, don’t worry – it isn’t necessarily the end of your car buying journey. Remember to be prepared, make informed decisions, improve your credit profile, and try again when the time is right.

*Not all applicants will qualify, subject to credit approval. Additional terms and conditions may apply. Actual rate may vary based on credit worthiness and term. First Financial FCU maintains the right to not extend credit, after you respond, if we determine you do not meet our guidelines for creditworthiness. Current loans financed with First Financial FCU are not eligible for review or refinance. A First Financial membership is required to obtain an Auto Loan and is available to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties. See credit union for details. A $5 deposit in a Base Savings Account is required to establish membership prior to opening any other account/loan.