What Happens If My Car Loan is Rejected? | Green Light Auto Credit (2024)

FAQs

What happens if my auto loan is denied? ›

The first step following auto loan rejection is to contact the lender to request the specific reasons for the denial. It is best to work to improve your credit before financing, but if you are in immediate need of a loan, consider shopping for a bad credit loan.

If you signed a contract to buy the vehicle you have not collected, you will likely be stuck with the vehicle. Unless you can get the dealer to undo the deal. If you did not sign a contract for the vehicle you can just walk away. There is no impact to your credit score.

Typically, the dealership will tell the consumer that their financing has fallen through. Then the finance manager will prepare a new installment sales contract, at a higher interest rate, larger monthly payment or other changes to the loan terms.

What minimum credit score is needed to buy a car? There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.

If you were denied because of a minor issue, such as a typo, reach out to the lender immediately to address the problem. If you need to build your credit, lower your debt or increase your income, consider waiting at least one month — but likely a few months — before reapplying.

The bottom line. If you have been denied a loan, take the time to review your application and see what went wrong. Then, work on improving the aspects that got you denied in the first place. For instance, if the main issue is that your DTI is too high, consider paying down debt before reapplying.

Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.

You hand over the keys and you may also have to hand over money to make up the value of the loan. Voluntary repossession allows you to return a car you financed without being subject to the full repossession process.

Once you're in default, a lender can repossess your vehicle without warning. A lender can repossess your vehicle after only one missed payment, but most do so after 90 days of no payments. Repossession rules and timelines vary by lender and state laws. After your car has been repossessed, the lender can sell it.

Losing your car can hurt your credit quite a bit unfortunately. Having your car repossessed or surrendering it voluntarily is seen as a major negative event by lenders. They'll view you as high-risk. Expect your credit score to take a big hit, maybe over 100 points or more.

Can I crash my car and get out of the loan? ›

If your financed car is totaled, an insurance company (yours or the at-fault driver's) will pay your lender your car's actual cash value. If the settlement doesn't pay off your entire car loan, you are responsible for paying the balance, even though your car is totaled and you can't drive it.

Lenders are unlikely to completely forgive your loan unless you turn your car in (which we'll talk about later on). They may work with you on your payment size or due date, loan terms or deferment instead.

The Federal Reserve found the overall rejection rate for auto loans was 14.2 percent in June, the highest level since the Fed started collecting this kind of data in 2013. Lenders are getting pickier about whom they give money to for many reasons, including inflation and a recent increase in delinquencies and defaults.

The base FICO score is also called FICO Score 8 or 9. It's not designed specifically for auto loans, but many lenders use it. It's a number between 300 and 850, and a higher score means that a person is more likely to make loan payments on time.

Not every co-signer is a good co-signer! For example, if their credit score is low or they have a history of missed payments, your lender might still deny the loan application. The key to a great co-signer is someone whose creditworthiness vouches for your own lack of credit history.

A borrower with a poor credit history or negative financial situations, such as bankruptcies or repossessions, will have a harder time getting approved for a loan—even with a good co-signer.

Refinance Your Car Loan

If you have good credit and owe less than what your car is worth, refinancing your car loan could provide some long-term relief. Refinancing involves replacing your current loan with a new one, often with a different lender.

Once you are 30 to 90 days late on your repayments, your lender will likely say that your loan is in default. Once you're in default, the lender may be able to repossess your car anytime, without notice, and come onto your property to take it.