Why do banks reject auto loan applications?
Updated on February 22 2024
METRO MANILA, Updated August 3, 2022 – Contrary to the beliefs of many Filipinos, getting an auto loan in the Philippines is quite easy compared to other countries.
All you have to do is fill 0ut the application form in the bank, submit the requirements, attend your interview and wait for the verdict. The tricky part comes in convincing them to approve your car loan application.
This is where several borrowers failed. Despite their hard work to impress the lender, they still got a “NO” from the lender.
If you are one of them, here are possible reasons why the bank rejected your auto loan application. Read carefully and find out how you can amend those mistakes.
Bad credit history
One of the most common reasons why banks reject an auto loan application is the bad credit history of the borrower.
When your financial history shows a long list of unpaid debts from other banks or lending institutions, the lender will immediately assume that you are not capable of fulfilling your financial obligations. Thus, granting your auto loan application will be a big risk for them, which is something that they often avoid.
Another red flag for most lenders is the negative financial history of the applicant. This includes things like failing to settle or having inconsistent payments for your electricity bills, water bills and even rental fees for an apartment or condo. Other financial problems like a lawsuit related to money can also be a huge factor in rejecting an auto loan application.
Tip: If you wanted to get that sweet approval from any lending company, make sure to pay off all your pending loans from other financial institutions. This includes postpaid plans from your phone network, credit cards and online lending apps.
Insufficient monthly income
While it is true that most people can immediately settle a down payment for a car, some buyers had a difficult time getting an auto loan due to insufficient monthly income.
Banks, just like other lending companies, wanted to make sure that you can fulfill your financial obligations if they will grant your application. That’s why they usually require the borrower to have three times the income in relation to the amount that you are planning to borrow.
For instance, if you are getting a vehicle with a possible monthly amortization of P15,000, your salary must be P45,000 or higher.
Tip: If this one sounds challenging, consider getting a co-maker who will help you meet the lender’s requirement. Choose from any of your family members with a good monthly cash flow and ask him to back you up.
Take note, though, that your partner can only act as your co-borrower if you are already married. If you are still single, anyone from your siblings or parents can apply.
Incorrect or missing information
Another reason for the bank rejecting your auto loan is incorrect or missing information that you provided during the application.
The information is used by the bank to validate your identity and check your financial capacity to pay the loan. For example, they will check if the address you provided is existing and you are a resident there.
That is why it is very important to give your data correctly. Even the tiniest mistake can affect your car loan submission.
Tip: After filling out the application form, make sure to read the details all over again. Review everything as much as possible so that you will not miss anything. If you have questions, do not hesitate to ask the bank or lending company so they can assist you better. This way, you can avoid another round of inconvenience.
Now that you have learned the three main reasons why the bank rejected your auto loan application, here are additional suggestions to help you save up for your dream car.
Stick with your budget
For a first-time car buyer, it is very important to determine and stick with your budget.
This will help you narrow down the potential vehicles that you can afford . Aside from that, banks will most likely approve your auto loan application if the amount you are planning to owe is lower than what they expected.
This means they will be at ease that you can fulfill your financial duties throughout your contract. Eventually, it will convince them to say “YES” to your application.
Build an emergency fund
Before re-applying for a car loan, it is highly recommended to build an emergency fund first.
To begin this process, decide on the specific amount that you will save up for your emergency funds. As a rule of thumb, you can start getting 15 percent of your take-home pay for this. Then, go up when you get an increase in your work or get a sideline job.
This way, you have a backup in case you face any financial problems in the future like losing your job.
Buy a repossessed car
If you want to purchase a car without going to the bank again to apply for an auto loan, consider buying a repossessed car instead of a brand new one.
Used cars are way cheaper than newer models, so you can get something without borrowing money. Furthermore, you can make modifications to your chosen automobile since repo cars are usually out of the manufacturer’s warranty.
Automart.PH offers a wide selection of used and repossessed cars at great prices, ranging from compact cars to pick-up trucks, that can go further on a tank of fuel.
And if you’re looking for the finest used cars, check out Automart.PH Certified Used Vehicles. These are restored until they feel like new again. They also come with a three-day money-back guarantee and, for Gold Certified units, a one-year warranty.
Automart.PH Senior Content Creator VJ Bacungan contributed to this story.