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April 02, 2019

Why Might Your Car Loan Be Rejected?

There’s nothing worse than the feeling of rejection.

After taking the time and care to put your application together, getting rejected for your car loan in Toronto can almost feel like a slap on the wrist.

You might ask yourself, “How could this happen?” The feeling can make you feel even worse when you feel like your dreams of owning the car you’ve always wanted has to be put on hold indefinitely.

Now before you make any hasty decisions and decide to reapply again on a whim, it’s important to sit down and analyse exactly why your car loan in Toronto got rejected in the first place. The more you understand, the greater the chances you can improve on your next application and help guarantee approval the next time around.

Read on to find out what the common reasons a car loan can be rejected.

Reviewing rejected car loan Toronto

What Are Common Reasons For Car Loan Rejection?

Current Debt

On top of assessing your income, lenders like to look at your debt-to-income (DTI) ratio. DTI is a personal finance term that compares their monthly debt to your monthly income. Lenders like to see this because they want to know how well you are at managing monthly debt repayments and see that you’re not currently overwhelmed by debt already.

So what’s your DTI?

If you’re unsure of what you DTI is, you can actually calculate it yourself to see whether you’ll look appealing to the eyes of a lender or not.

Firstly, calculate all the debt you owe each month. Then figure out what your gross income is, which is the you pay you earn before monthly taxes and deductions come in.

Divide up all the debt payments you make monthly by your monthly income and multiply that answer by 100 to get a percentage point. That percentage point will signify your DTI. The lower the percentage, the higher the chances of getting approved by a lender.

Why? Because it shows that you have a good balance between debt and income and are likely to make monthly payments on time based on your income earnings. If your DTI is too high, lenders may be wary of giving you approval because they may feel like you’ve taken on too much debt already to be able to keep up with any more.

Remember, lenders are the ones that take the biggest risk when lending money, so when going through different applicants they want to make sure they approve ones that will give them the lowest risk possible.

Employment History

Your employment history is another key indicator as to whether your loan will be approved or not. If you just started a new job, aren’t earning enough income, or have an unstable employment history, this may prevent lenders from approving your loan.

If you’re a freelance, independent contractor or seasonal worker, lenders will want to see income statements from the last couple years. Many lenders like to see that you’re earning at least $10 an hour.

Poor Credit

Your credit history is a strong indicator to lenders of how likely you are to pay back your car loan in Toronto. The higher the credit score, the better the chances that your loan will be approved.

Your credit report breaks down everything from outstanding debt, overdue accounts, past bankruptcies and previous credit inquiries. It’s always a good idea to do a credit check yourself prior to applying for a car loan so you know exactly where you stand. This way you can have a better idea about whether or not your score will jeopardize your chances of getting approved. If you think it will, you might opt to take a step back and repair your bad credit first before applying for a car loan.

No Credit

In some cases, if you don’t have enough credit history, it it can also prevent you from getting approved as lenders like to look at your ability to pay back your dues. If you don’t have any track record to refer to, lenders may be wary of lending you money.

Building a credit history from scratch can be hard though, especially if you’re young or new to Canada. The situation can become even more dire if you’re heavily relying on that new car for personal purposes.

What can you do if you find yourself in this situation? The most effective way to get over this hurdle is getting a cosigner to go onto your car loan Toronto application. Sharing the responsibility of the loan with a family member or friend who has a more established credit history and healthy credit score can heighten your chances of getting the car loan you need.

Missing Documents

Every lender has their own list of required documents that they ask for when assessing an application. If you fail to supply something, lenders can’t process your request and your entire application gets rejected — simple as that.

As soon as you think you’re ready to make your submission, triple check and make sure you’re submitting everything that’s been asked of you by your lender. On top of that, it’s making sure that none of your documentation has expired. Those who have everything ready are already one step ahead of the game and closer to getting the approval they’re looking for.

Mistakes and Misinformation

Much like any application process, lenders will be going through your application with a fine-tooth comb to make sure everything they need is there and that it’s accurate. To prevent simple and common errors, be sure to fill out all the required sections, provide all requested details (i.e. income, employment and loan purpose) and be sure to proofread all your answers.

You’ll be surprised how this one simple step might actually boost your chances of getting your car loan in Toronto as many are rejected daily for technical errors and misinformation. The extra time you put into polishing your application, the quicker the overall process will be.

You’re Asking For Too Much

It’s possible that you maybe asking for way more than what a lender is willing to give. If you’re looking for a car that’s on the high end of your price range but you have a high DTI, lenders may not be as compelled to approve your car loan. In cases like this, you may have to settle for a vehicle that’s more within your price range to help lower your risk of rejection.

How Can I Make Sure I Don’t Get Rejected Again?

Now that you know why your car loan might have gotten rejected in the first place, here are some tips to make sure that it doesn’t happen again.

Ask Why You Got Rejected

If you don’t ask, you won’t know. Getting direct feedback on your application can increase your chances of getting approved when applying for a second time. If you get rejected, be sure to ask your lender for feedback so they can pinpoint exactly what the weak points of your applications were that made you look like a not-so-ideal borrower. They’ll highlight all the red flags in your submission and what you may have missed, so you’re all ready and set to go for next time.

Check The Lender’s Requirements

Every lender will have their own set of requirements so make sure you do your due diligence to make sure you meet every single one of them. Some requirements may include good credit or specific income criteria. If you don’t meet some of their strict criteria you might risk getting automatic rejection again. Thankfully there are a lot of lenders in the market, so if you find that the one you’re applying to is too strict, look at other who have more lenient requirements.

Pay Off Current Loans

If you can, it’s always advised to pay off any loans before applying for new ones. If not, at least be able to prove you’re making all you payments on time. Lenders want to see that you’re able to pay off your debts in a timely manner before racking up more.

Triple Check Your Applications

As we mentioned earlier, minor errors can lead to major rejection and lost time. As soon as you think you have everything you need to make your submission, go through everything again. Make sure you have all the proper documentation that was asked from the lender and that it’s all still relevant. Once you’re confident that you’ve dotted all your i’s and crossed your t’s, make your submission!

Woman signing car loan Toronto agreement with alternative lender

Look At Other Options

When it comes to lenders, potential borrowers typically like to go to banks and credit unions but sometimes their application requirements are a little too strict to qualify. For example, banks and credit unions tend to have stricter income requirements and typically require that all applicants have a good credit standing. This can be very troublesome to those who don’t fit the criteria, but thankfully there are other options borrowers can opt for.

Whether you have bad credit, no credit or filed for bankruptcy in the past, there are alternative lenders like that will work with you to provide the car loans you want. Leveraging their own trusted relationships with some of Canada’s top financial institutions and lenders, can negotiate car loans in Toronto that work within your budget.

What’s the best part?

Besides getting the car you want, if you consistently make your monthly car loan payments you can turn your bad credit around! If you keep that up, this will help you down the road if you’re looking for any sort of financing again.

How Long Should I Wait Before Applying Again?

This greatly depends on why the loan was rejected in the first place. Generally some lenders stipulate a minor waiting period between applications but they’re none are that significant. Immediately reapplying for a car loan is only really suggested if the rejection was caused by something minor like missed documents or inaccurate information.

In what cases would you benefit from waiting on reapplying?

If you were denied because of a poor credit score, you might want to wait until you’ve been able to repair and improve your score. As mentioned before, this might also be a great opportunity for you to look into other car loan Toronto options, like To see how they can help you get into the driver’s seat of your dreams, contact them today and see how they can help you.

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