Why a car loan is declined and what you can do then The trusted car dealer has been found, the vehicle of your choice is immediately available, the purchase contract may already be ready for signature – and the car loan applied for at the bank is rejected. How could that happen? When is a car loan refused? Who actually writes and advises here? About us On this page Why is the car loan refused? How do I get a car loan anyway? Compare loans directly
Why was my loan application rejected?
Roughly speaking, there are two reasons why a bank rejects a loan application: Either the applicant did not meet all of the acceptance guidelines. Or the applicant’s creditworthiness is not sufficient for the loan amount.
The formalities were not met
On the one hand, the banks have in-house acceptance guidelines and, on the other hand, they have to comply with statutory guidelines. This results in a list of acceptance criteria that each applicant must meet. Due to the in-house guidelines, the requirements may differ from bank to bank, but the requirements are usually similar or similar.
Banks often require the following:
- First residence in Germany
- Account in Germany
- Verifiable monthly income
The creditworthiness is not sufficient
When it comes to creditworthiness (also called creditworthiness), monthly income is not the only thing that consumers sometimes assume. Rather, there are two things:
- The ratio of income to loan amount
- The prospective willingness of the applicant to pay the loan installments on time and in full
The relationship between income and loan amount is that the income is sufficient to easily pay the monthly loan installments. With a low income, you can easily get a car loan with a small loan. With a large loan amount, however, there may be problems.
A reason for rejecting the loan can therefore be an overly chosen loan amount!
When asked how likely it is that the applicant will pay their monthly installments as agreed, the bank looks at the applicant’s payment history in the past. The bank first takes a look at its own documents if the applicant is already a customer of the bank: Have the installments been paid on time with an earlier installment loan (not just car loans)? The bank then contacts Credit Bureau, Germany’s largest credit agency. Here she asks the applicant’s score. The score is a single number that indicates how well or how badly the applicant has recently paid his bills to banks, retailers, online retailers, etc. The behavior was good with a high number, rather bad with a low number.
If the bank now believes, based on the information available, that the applicant can fully repay the financing, the car loan is approved. If not, there is a rejection.
Another reason for rejection can be the bad payment behavior in the past!
How do I get a loan anyway?
If a car loan has been rejected, you can of course apply for funding from another bank. However, the prospect of success is rather slim here. Because if the first bank already had concerns, the second bank is likely to share those concerns – either because the loan amount is too high or the credit rating is insufficient.
If the loan amount is too high, the clerk at the bank will notice this when you apply. Inadequate creditworthiness is determined at the latest when the bank has the Credit Bureau score.
So there are only two things left to get a car loan: improve the Credit Bureau score or reduce the loan amount. Ideally, one tries to do both.
Improve Credit Bureau Score Credit Bureau does not disclose which factors the score is calculated from, at least for the most part. The credit agency has released only a few details.
However, there are speculations as to which things actually affect the score. These probably include:
- the amount of liabilities (debts) to banks, mail order companies etc.
- Frequent bank refusals for loan requests
- the use of the overdraft facility (overdraft facility)
- the number of credit cards
- the frequency of the change of residence
The credit agency evaluates all of these things as an indication of a more relaxed handling of financial resources or an unstable lifestyle, which suggests a loose handling of financial resources.
Reduce loan amount
Of course, it is not easy to significantly reduce the financing requirement once it is clear which vehicle you want to buy. With a car loan over a five-digit USD amount, it makes little sense to reduce the loan amount by just 500 USD if you want to increase the chances of financing.
You now have two options: either to reduce the loan amount and to procure the missing amount for the purchase amount elsewhere (e.g. through savings or a private loan), or you can choose a cheaper vehicle.