One reason why you may be denied an auto loan is your lack of creditworthiness. That means your credit is unfortunately not good enough to convince lenders to take on the risk of financing your vehicle. Your credit must look good then to get approved for an auto loan. Let us help you how.
1) How does your credit look?
First, pull out a copy of your credit report. It’s important to take a good look at your credit report before approaching lenders. This protects you from being lied to about your credit score and gives you an idea on how you can prepare for auto loan applications.
If your credit report shows that you have bad credit, you might want to spend some time improving it first before applying for an auto loan. You have more chances of getting approved with a better credit.
2) Watch your credit applications.
Your credit report has a record of hard and soft credit inquiries. Hard inquiries are done by potential lenders or credit card companies when you apply for a loan, mortgage, or credit card with them. Soft inquiries are done for the purpose of background check. For instance, a potential employer wants to learn about your credit background as they make a decision on your job application. Checking your credit to find out how you are doing is also a soft inquiry.
Hard inquiries affect your credit score. They stay in your credit report for at least 2 years. Your credit score will improve as soon as the record disappears. While hard inquiries are inevitable especially if you’re trying to get an auto loan, their effect on your credit score can be minimized by avoiding too much credit applications at one time. In other words, do not submit applications for loans, mortgages or credit cards in brief intervals.
3) Keep a job for at least 2 years.
One factor that affects your creditworthiness is employment and income stability. Lenders need to see that you have been working for a company for at least 2 years. This tells them that you are more likely to repay the loan in the coming months until the loan term ends.
It’s also important that you’re earning enough to repay the loan amount you’re trying to borrow. Lenders would usually look at your tax returns, pay stubs and other related documents, and might also call your employer to verify.
4) Always pay on time!
Did you know that being late in your payments, even being just one-day late, can affect your auto loan approval? That’s because any negative information like late payments, bankruptcy and repossession, affects your credit history and is a red flag to lenders. Such record diminishes your creditworthiness and reduces your chances of getting approved for any credit.
And not only that, lenders actually look at your willingness to pay rather than your capability to pay. You may be earning well enough to suffice the monthly payments but a lot of delinquencies can cause a lender to turn your application down.
To maintain a good-looking credit, never be late on your payments. Do everything with discipline to avoid missing payments and damaging your credit rating in effect. You can turn to the Public Finance division of the Finance Department here in Houston for some assistance on managing debt.