Top reasons why your Used Car Loan application might get rejected
You have been eagerly waiting for the approval for your used car loan and it has not come yet, and you become anxious and begin to doubt if your application was properly filled and all the relevant documents submitted. Well, if you have not received the approval it could be an issue with your application.
It is advisable to take out your copy and recheck your application. You can specifically check for the following which will help you to find out why your application is delayed and likely to be rejected. Remember that used cars are not the same as new cars and the loan terms are more stringent.
Check your Credit Score
For a used car loan, your credit score is important for the lender to determine your creditworthiness. Often, people such as you may not obtain the credit score on their own and wait for the lender to tell them. It is possible that your credit score might be wrongly reported. It happens if lenders make a mistake while reporting information to the credit bureau. Unfortunately, the credit score cycle takes up to six months to reflect the correction of errors. So, it is in your interest to be doubly sure that your credit score reflects the true state of affairs without any errors.
Check your take-home pay or income
Tata Capital would consider your income after deducting your fixed monthly expenses. Say, if your gross monthly income is Rs100K and fixed expenses are Rs40K, then the fixed expense to income ratio is 40%. If this is more than 50% then your loan application is likely to be rejected or it may seek a review of your secondhand car loan amount. Therefore, check whether you have enough income after fixed expenses to service the loan for used cars you want to take.
Loan service history
This is another important aspect considered by lenders in extending used car loans to you. Remember that any loan that you have availed through RBI-authorized financial institutions will have a record in the hands of multiple agencies such as your bank, the credit bureau and the lenders from whom you have availed loans. So, even if there is one default that gets reflected in some data base and can be retrieved because you would have given consent to verify the information. Therefore, see that you have a clean record as far as your payments to service other loans are concerned.
Credit Card Usage
Credit card usage is another important metric that you must be careful about. Remember the credit card limit gets reflected in the credit score to the extent of credit not utilized. It means higher the credit limits usage lower would be the credit score. Often, you may tend to think that only loans are considered for a credit score, which is a wrong assumption. You must realize that credit cards are also one form of loan. Therefore, it is possible that you may have used all your credit card limits, and this raises a red flag for the lender when you apply for a secondhand car loan.
Too many loan enquiries
It is possible that you have made too many enquiries with lenders to seek a used car loan and this also reflects in your creditworthiness assessment by lenders. Therefore, check and see if you have done this just before you approached Tata Capital.
It is possible that you might have inadvertently supplied incorrect information. For instance, your application may have a secondhand car loan amount for which you are ineligible. Maybe your address proof is inadequate or not conforming to norms set by the lender and statutory authorities. Perhaps the documents you have submitted are not up to date. Therefore, it is best to double check your application before you transmit the same.
The above are some of the reasons why your application may be rejected. It is suggested that you must be thorough in scrutinizing your application for all elements that affect the sanction of your used car loan. Ensure that you adhere to all the guidelines issued by the lender, especially when it is a loan for used cars. More importantly, ensure you are prompt in servicing your loans and checking up on your credit score every six months to determine that it reflects the true state of your financial affairs without any errors.