What Happens If the Bank Does Not Approve Your Car Loan

Understanding why your loan was denied and what to do next.

Aidan Keefer | 

Dec 14, 2023 | 3 min read

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Buying a car is more than just choosing the right make and model. It's an endeavor that requires meticulous financial planning. When a car loan is not approved, some buyers are unsure about why they were denied and what they can do next.

For many drivers, a loan is necessary in order to purchase a vehicle. Here are a few of the reasons why a car loan might not be approved and how car buyers can take steps to improve their financial standing for a future purchase.

Why Your Car Loan Was Not Approved

Financial institutions can reject car loans for a number of reasons, most of which revolve around your financial and auto-ownership history. Here are a few possibilities to consider if financing fell through on a car.

• Your FICO score was too low. FICO scores differ from traditional credit scores in part because they refer specifically to credit based on auto-related payments you've made in the past. Therefore, buyers should be closely aware of their FICO score when it comes time to request a loan — bad credit behaviors, such as using over 30% of your apportioned credit, can contribute to a lower score.

• You've missed payments or had a vehicle repossessed. If you’ve missed past payments on a previous auto loan or had a car repossessed, these issues can linger on your credit report, impacting your FICO score and potentially affecting your ability to get a loan.

• You've had too many hard pulls of your credit. While a denied auto loan doesn't affect your credit score, hard credit pulls could lower your score by five points, even if the associated loan isn't approved. To prevent penalty, make sure to complete all of your credit checks and compare loan options within what is typically a 14-day shopping window. All credit pulls during the shopping window are reflected as a single inquiry.

Your Car Loan Was Denied. Now What?

If your loan is denied, there are a few next steps and potential pivots you can take that might help secure auto financing in the future:

1. Review the contract to ensure the agreed-upon details with your dealership are accurate to your previous conversations.

2. Review financial details with your lender and explore other immediate options that can still help you make the purchase.

3. In some instances, you might explore alternative ways to purchase the car, such as buying in cash or securing a loan from friends and family.

4. Review the details of your FICO score to see how you can improve your financial situation to potentially increase your likelihood of approval.

Steps to Repair Your Financial Standing

Once you pinpoint the issues with your application, there are a number of actions that you can take to set yourself up for a higher chance of future loan approval. Some strategies to help improve your loan eligibility include:

• Restructure your existing loans with a payment plan that's realistic for you.
• Track down and ensure you're up-to-date on any missed payments.
• Consider working with a credit counselor to help adjust your saving and budgeting process.
• Pay off existing debt directly rather than moving it around to other accounts or credit cards.
• Check your credit report for any inaccuracies in payments or debt, then contact the reporting agencies to see what steps you can take to remove them. In some instances, you can request a courtesy removal.

When you revisit your auto-loan options, explore car brands that are suited to your credit range. For example, an auto loan for a luxury car, such as a Tesla or a Porsche, will likely require an excellent credit score. An auto loan for a Kia or Nissan may require a score in the fair, good, or very good range. The credit score itself, while important, is just one factor in a lender's approval on an auto loan.

Aidan Keefer

Aidan Keefer is a writer and strategist focused on finance and insurance for the consumer and commercial markets, especially as those topics pertain to the automotive industry. Currently based in New York City, Aidan grew up in New Jersey — where he's navigated some of the most aggressive, unforgiving roads on the East Coast. Outside of writing about finance and insurance trends, Aidan can be found watching old movies or checking out the latest brewery opening.