It’s critical to be aware of the precise situations that can result in a vehicle loan denial before you submit an application. Most people want to get a car loan in order to finance their car.
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Cars are very expensive in 2023; it is rare that you can get the car of your dreams if you have a tight budget, in which case you might have to settle for a Nigerian used car. But, ultimately, you don’t want it at the end of the day.
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You would want a car that you would use for a long time. This is where car loans come into play. Car loan companies help you get your desired car with their help while you make payments spread out in instalments over a couple of months.
You have a higher chance of getting your vehicle loan application accepted if you are aware of the warning signs. Most people aren’t aware that the slightest mistake can make your loan application get rejected on the spot, especially if the loan company has a large number of applicants. Knowing your credit score and whether you have a means of repayment is the best place to start if you want to get a car loan in the future. These are the reasons why your car loan application might get rejected.
A car loan is rejected due to bad credit
The main one is having terrible credit. Bad credit generally describes a person’s habit of missing deadlines for debt payments. It also emphasises the risk that they would make future payments late.
You should avoid having poor credit when applying for a car loan. When you have problematic debts, your credit score will suffer. Bad debts are those that you failed to pay back and likely had to be written off.
Usually, the credit bureau receives a report regarding these debts. Before making a loan decision, every financial institution is obligated to review these credit reports from at least two separate sources.
Your chances of getting your vehicle loan approved would suffer if they checked and discovered a record of a bad loan that was not repaid. If you don’t have a letter of non-indebtedness, it basically amounts to an outright refusal.
Bad credit affects loan applications in more ways than just your name; it also draws attention to the fact that you have a history of defaulting on loans thanks to your BVN.
The ratio of debt to income
This is very significant and is also referred to as the DTI (debt-to-income ratio). In Nigeria, you are only allowed to use a third of your monthly salary to pay back loans. This means that even if you have a high salary, such as ₦1 million, and you have a loan for which you are making monthly payments of ₦200,000, any further loans you seek should not total more than a third of your salary when combined with the one you are already repaying.
Your application for a car loan will be flatly rejected if your DTI is higher than the required 1/3. You might be able to liquidate an existing loan. If you wish to borrow ₦2 million for a car from business B but owe company A ₦500,000 and are making monthly payments of ₦100,000, company B will pay company A the ₦500,000.
This implies that you are now paying back a ₦2.5 million car loan to firm B. To avoid paying back two parties at once, Company A has essentially been paid off.
It’s important to note that this would lengthen the loan. For instance, the repayment schedule can be extended from 12 to 18 months or even 2 years. Your DTI will be able to accommodate the loan in this manner.
Missing Documentation
Additionally, this can result in the denial of your application for a car loan. For instance, if you are a business owner requesting a loan, the bank may ask you to sign a document committing to do business with them and promising not to transfer your clientele to another bank until the debt has been repaid. You can be rejected if you don’t agree to these requirements.
Even your chequebook might be requested by the financial institution. Refusing increases the likelihood that you will be rejected. These terms are heavily influenced by the financial institution and the particular documents that they request.
However, all financial loan companies require a few standard documents. For instance, the banks will ask for a copy of your utility bill. It is a criterion that must be met. Your application for a car loan is quite likely to be rejected if you submit additional documents without a copy of your utility bill.
This also holds true for business owners who request auto loans from the bank or most loan companies. You’ll have to turn in your CAC document. Your application will be denied if it doesn’t have it.
The Kind of Vehicle
Depending on the financial loan company involved A restriction on the age of the vehicle exists with some loan companies.
Many loan companies refuse to provide auto loans for vehicles that are older than 12 years. You will undoubtedly be denied a car loan if your preferred vehicle is a locally used car.
These are a few of the warning signs that an auto loan application might be turned down.
Frequently Asked Questions
Can I get a loan to purchase a used car?
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