Are you looking to purchase a new vehicle but been denied loans? Do not be discouraged! Read through these five probable rejection reasons to identify any errors you may have made.
Top 5 Reasons for Rejection of Your Car Loan Application
Bear in mind that you may apply for a car loan swiftly after addressing the following application deficiencies.
An unfavourable credit score
Having a low credit score, or CIBIL score, is one of the key reasons for that rejection letter. Your CIBIL score provides lenders with information about your creditworthiness. Banks operate on the fundamental premise that the greater the borrower's CIBIL score, the less likely they are to default on their EMIs.
Obviously, the converse is also true. Thus, if your CIBIL score is less than 600, your chances of being approved for a car loan decrease. Between 600 and 750, your credit score may qualify you for a car loan, but at a somewhat higher interest rate. A credit score of 750 or above, on the other hand, is regarded good, and a borrower with this score will almost surely qualify for an attractive interest rate on a vehicle loan.
As a result, verify your credit score before to applying for a car loan.
How Can You Boost Your Credit Score?
Increase your credit score by making on-time payments on all your debts. Defaulting on credit card and other EMI payments might have a negative influence on your CIBIL rating. Additionally, avoid making repeated loan inquiries or applying for loans with different lenders at the same time.
Instability in the economy or insufficient income
A lender determines the amount of loan you may obtain and repay based on your monthly income and employment stability. Frequently, a lender will reject a borrower's application simply because the loan amount exceeds the borrower's repayment capabilities.
How to Address the Issue
Assure a secure income by working for a reputable employer. If you are self-employed or a freelancer, present documentation such as income tax returns, balance sheets, or other evidence of a consistent income. Finally, avoid borrowing more than you can afford.
Incomplete Documentation
Even though some banks have eased their auto loan qualifying standards and paperwork requirements in recent years, you must still compile them to increase your chances of acceptance. As a result, speak with your lender and create a checklist of all the papers you'll require.
How to Ensure Complete Documentation?
Incomplete or erroneous paperwork is another reason your vehicle loan application may be refused. When completing the paperwork, it is prudent to get assistance from friends or family members who have recently taken out a car loan. Additionally, consult the bank's website to ensure that you understand the documentation that you will need to give throughout the loan approval procedure.
Current Loans
A automobile loan is often in the lakhs, which is why you should avoid asking for concurrent high-value loans.
How Can This Issue Be Addressed?
Consolidate and pay off your debts before to applying for a vehicle loan. As a result, you may take sensible risks and prepare forward for a more prosperous future.
Ratio of Credit Card Use
A high credit card use rate might have a detrimental effect on your acceptance prospects and credit score. When you are not applying for a vehicle loan, it is perfectly OK to exceed your credit limit. However, if you intend to obtain vehicle financing, ensure that you maintain a good credit card usage ratio for several months prior to applying for the loan.
How to Maintain a Low Credit Card Use Ratio?
Create a budget to eliminate needless purchases, increase your credit limit, and ensure timely repayments.
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