Sometimes you know that your credit isn’t necessarily the best, but that doesn’t stop you from hoping. And then you apply for a loan: Denied! Even if you knew it might happen, it doesn’t always ease the sting. Worse, you may have really needed that loan for a ride. A reliable vehicle that helps you get to and from work and gives you the ability to function day to day. So what happens next?
Look at the Whole Situation
Before you can begin life after a loan denial and formulate a plan, it’s essential to understand where everything went wrong. What was the cause of the denial? Was it one thing, or several? Is it something easily fixed, or will it take a bit of time? Do you understand what you’ll need to do to secure a loan in the future? Is it the place you applied to? Could you have tried something more suited to your budget and financial picture?
All of these questions are valid in making sure it doesn’t happen again. Some of the top reasons people get denied a loan are:
- Income/employment situation isn’t stable
- Credit is bad/poor
- No credit
- Haven’t been long enough at a residence
- Debt to Income ratio is too high
- Your credit card balances are too high
- The loan amount was too high
Before you go and apply for another car loan, you’ll want to address each of these situations and make sure they are fixed before you try again.
Work on Your Poor Credit to get Your Used Car
Getting a stable job or income is pretty self-explanatory. You can probably also understand what it means when you have too much debt compared to your income. Paying down your credit card balances should always be a priority if you’re working to improve your financial outlook. Living situations are most likely the least of your worries when it comes to a loan. That leaves credit. And credit is the number one reason people are denied.
If you have poor credit, it’s time to start improving your score. There are a few steps you’ll want to take.
- Pull your credit report: You won’t know where you stand until you look. If you haven’t used your free annual credit report, order that.
- List out your debt: Find all the valid debt you have and list it. Create a plan to deal with it and start paying it down. There are many online resources that will help teach you how to do it. For example, many people use the debt snowball method.
- Dispute items that are incorrect: If you find things on your credit report that you don’t agree with, dispute them. Although the process can be somewhat time consuming, it’s fairly simple.
- Make a budget: One of the best ways to manage your cash is to have a budget. If you are more fly-by-the-seat-of-your-pants, it’s time to buckle down and work at being more aware.
- Make all your payments on time: Lastly, you should be making all of your payments on time. With your credit cards, if the balance is high, don’t use them. Instead, get creative and make extra cash. Sell old stuff, have a yard sale, get a second job, do odd jobs—anything it takes to keep from driving your debt higher, and that may help with paying balances down.
Work on No Credit
Another common situation that can hinder you is no or not enough credit. In this situation, here are some things you can do:
- Get a secure credit card
- Get a co-signer
- Get a credit-building loan
Make sure you have all the other pieces in place that it takes to get a loan (i.e. job, residence), and take a little time to build some credit before your next application.
Approach Less Traditional Lenders…With Caution
What type of loan were you denied? Was it a regular bank or a traditional auto lender? If you haven’t yet sought out less traditional lenders, it may be worth doing. Before you apply though, make sure to know what you’re getting into. There are still predatory lenders out there ready to take advantage. Know the signs of a predatory lender.
One way many people who are working to improve their financial standing get auto loans is through in-house financing. There is a little more leniency, and often in-house lenders will get to know who you are and what you are doing to improve your situation. If you’ve been denied a traditional loan, try an in-house auto loan at a reputable dealer. Still denied? Repeat the above steps.
Getting a loan denial isn’t the end of the world. Make it a priority to work on your credit or fix the root of the denial, and you’ll get approved before you know it while developing better habits in the process.