What to Do if Your Car Loan was Denied After Approval

After negotiating a great price for your dream car, you secured financing and drove off the lot brimming with pride. But then the dealership calls, saying your car loan was denied after purchase and you must return the vehicle. It sounds ridiculous, but it can happen for several reasons.

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Here’s why some car loans get denied after approval, how to avoid it and what to do if it happens to you. 

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Key takeaways

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• A car loan can be denied after purchase if there are any mistakes in the loan application or if you experienced a sudden financial change, such as a job loss.
• Some dealerships may allow you to drive the car off the lot before financing is approved, but the lender has final say regarding loan approvals. 
• You should contact the lender after a financing denial to ask why and seek solutions. 
• Bad credit borrowers can reduce the risk of loan denials after purchase by adding a co-signer or making a larger down payment.

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Why a car loan might be denied after you buy a car

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Your car loan may be denied after buying a car due to mistakes made by you, the lender or the dealership. In some cases, it could just be bad luck. Here are common scenarios where it might happen:

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Clerical errors

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Your car loan may be denied after you buy the car because of human error on the dealership’s or the lender’s end with your paperwork. For example, they may have:

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• Entered your income, employment details or personal information incorrectly, which hinders the lender’s ability to verify your information
• Mistyped the vehicle information, such as the VIN, mileage or purchase price
• Submitted the wrong loan terms, like the loan amount, interest rate or duration
• Left out required paperwork or signatures, delaying or invalidating the approval

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Any typos or oversight while filling out the application could cause a loan denial. 

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Financial changes

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Having your car loan denied after your purchase may be no one’s fault. It may simply be due to an unexpected change in circumstances, such as suddenly losing your job. The change in your employment status turns you into a risky borrower, causing lenders to back out of an already-approved loan. 

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It may also happen due to a sudden economic downturn that causes lenders to tighten their approval standards. Another possible reason is the lender going out of business.

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Dealership financing

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Some dealerships let you drive off with a car before the lender approves your loan. The practice is called “spot delivery,” and it increases the likelihood of having your car loan denied after purchase. This is because the lender has the final say regarding loan approvals, and they might reject the financing after reviewing your creditworthiness or the loan terms. If this happens, the dealership will ask you to return the vehicle or renegotiate another deal.

Unfortunately, some unscrupulous dealerships have turned spot deliveries into yo-yo scams. These scams involve letting you drive off with the car thinking your loan has been approved. They’ll then call you back days later asking you to return the vehicle because the lender rejected the loan application. 

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When you return, they pressure you into signing a new loan agreement, usually with higher interest rates, a larger down payment or longer terms. The scheme typically works because the buyer has become attached to the vehicle and isn’t willing to let go, making it harder to reject the new, less favorable deal. Some dealerships even go as far as threatening repossession or falsely reporting the car as stolen.

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What to do if you’ve been denied a car loan

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The first thing to do if your car loan is denied after buying a car is to contact the lender or dealership to ask why. You can’t fix the problem if you don’t know what’s wrong. If it’s a simple clerical error, you can easily address it by providing the correct documents or missing information.  

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Here are other possible solutions for common reasons a lender may deny a loan application:

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If you’ve been denied due to bad credit...

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Offer to add a co-signer or increase your down payment amount.

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If you’ve been denied because your income is too low...

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Provide proof of all your income sources or additional earnings.

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If your employment details couldn’t be verified...

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Provide the correct contact information for your employer and show recent pay stubs.

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How to improve your chances at car loan approval

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While it’s possible to turn around your car loan getting denied after purchase, most people want to secure a loan approval the first try. You can significantly reduce the chances of a loan rejection by providing the dealership and lender with complete, accurate information from the start. Any mistakes with your income, residence, employment or personal information can compromise your loan application.

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Also, consider getting pre-approved by a bank or credit union to know the loan amount and terms you can get. Otherwise, you risk applying for a loan with zero chance of qualifying.

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Lastly, if your credit score isn’t the best, increase your chances of approval by improving it first. You could also save for a larger down payment or add a co-signer to strengthen your application. 

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In some cases, you may get a loan approval, but not with the terms you want. Keep in mind that you can later switch to a car loan with a lower payment or better interest rate by online auto refinancing. It’s typically easy and straightforward.

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Check out the RefiJet blog to learn more about auto loans and refinancing.

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FAQs

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Here are answers to popular questions about car loans being denied after purchase:

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Can you be denied a car loan after purchase?

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Yes, a lender may deny your car loan after purchase. This may happen because of discrepancies in your loan application, having a bad credit score or trouble verifying your employment or income. A lender may also deny the loan if you buy a vehicle that doesn’t match the one in your application.

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Can a dealership take back my car if financing falls through?

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Yes, a dealership can take back your car if financing isn’t approved. After all, without financing, you haven’t actually paid for the vehicle or fulfilled the contractual obligation required to keep it. 

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What are my immediate options if my car loan was denied after purchase?

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The first and best thing to do is contact the lender to learn why your loan was denied. If it’s a simple filing or clerical mistake, you can usually fix it by providing the needed information or paperwork. Other reasons, such as bad credit or income issues, may require finding new financing or returning the vehicle.

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