Top 5 Reasons Why Car Loan is denied


The first thing you do when you planning for your dream car is to look for finance this purchase. And a car loan is the most sensible finance option.

Why Car Loans Rejected

That being said, getting a loan sanctioned isn’t always an easy process. For some people getting a loan is a piece of cake. They go to the bank, apply, and their loan is approved. For others, the process isn’t so easy. There are quite a few bumps along the road. And for some people, the bumps end in a dead end with the bank rejecting their application.

So, why did your car financing get denied? Here are a few common reasons:

  1. Low CIBIL Score

    Your CIBIL score is a numerical summary of your credit history. The score takes into consideration the number of debt obligations you have (such as loans and credit cards) and if you have made payments on them in full and on time. Defaulting on payments or applying for too many credit facilities within a short period of time could lead to a low CIBIL score.

    A low score means that the bank will label you as a high-risk customer or a customer who isn’t likely to repay the loan. And since banks take this score seriously this may be one of the reasons why the application for a car loan may have been rejected.

  2. No Credit

    This situation is the complete opposite of having too much debt. In this case, you have none at all. Why is this a problem? Well, mostly because the lack of any credit makes it difficult for the bank to assess your creditworthiness and lending money is a risk they may not want to take. In such cases, the bank may require you to get a co-signer. This person should be one who has a good credit history. Generally, banks ask you to get either of your parents or your spouse as a co-signer. If you default on your loan, the co-signer is legally obligated to repay the loan.

    If, however, your co-signer’s credit history is sketchy at best and you have no credit to your name, your loan application could be denied. On the other hand, if you are okay with delaying your car purchase, you can apply for one or two credit cards and start using them. Make sure that you pay your bills in full and on time. This will help build your CIBIL score and banks will be more likely to lend you money.

  3. Incomplete or Incorrect Documentation

    With any loan, there are a number of documents that the bank will require you to submit apart from the application form. These include identity-related and income-related documents, among others. Missing documents and incomplete forms are both grounds for denying your car loan application. In such cases, you may have to go through the entire loan application process from the beginning.

  4. Debt to Income Ratio

    Your debt-to-income ratio states how much of your monthly income goes towards paying your debt. Ideally, this ratio should not be greater than 30%. Banks will go through your cash inflow and outflow and will take a look at your debt-to-income ratio. If the ratio is too high, it could mean that you may have difficulties in repaying the car loan as well if the bank ends up sanctioning it. This could be another reason why banks end up rejecting your loan application.

  5. Employment History

    Your employment history is another reason why a bank may reject your car loan application. If you change jobs often and within short periods of time, the bank may feel that there is some sort of instability in your life. As such they may not be willing to lend money to someone whom, in their opinion, may or may not have a job in a few months. In fact, some banks may even require you to have held the same job for at least a year as part of their eligibility criteria.

    At the end of the day, remember that no matter what reasons your bank may give you regarding why they have rejected your car loan application, it is not the end. Go Here to check ways to fix all of these problems and get your loan approved so that you can buy the car of your dreams!


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