Why Was My Car Loan Application Declined?

All car loans in Australia, including home loans and all other types of personal loans

, are governed by strict regulations that require lenders to act responsibly. This means that a lender is obligated to investigate every applicants financial circumstances to establish whether or not they are capable of meeting loan repayments without suffering any undue hardship.

Although every bank follows similar practices in this regard, every lender has varying degrees of flexibility. This means that although one lender may decline your application, another may issue an approval. It all depends on your individual circumstances and the credit policy of the bank at the time you apply.

Before considering why a loan application will be declined, let's take a look at things a bank needs from you to make a decision.

* Proof of income. Every applicant has to provide the bank with recent payslips and a copy of the most recent years PAYG summary. This gives the bank proof of your income so it can decide whether or not you can afford the repayments for the loan you are applying for.

* Statement of assets and liabilities. The application form will contain a section where you will have to declare every asset you own and every liability you have. Liabilities include things like credit cards, other personal loans, home loans and miscellaneous debts including HECS and taxation liabilities. This is possibly the most important section of the application as it paints a picture of your overall financial situation.

* An indication as to whether or not you are prepared to take a secured personal loan or an unsecured personal loan. A secured personal loan allows the bank to sell your car in the event of you're becoming unable to make repayments. An unsecured personal loan is one where the bank takes a risk and they are therefore likely to charge a higher rate of interest for this type of facility.

* Credit history. Once you lodge your application, the first thing a lender does is obtain a copy of your credit report. This report includes every application you have made over the last 5 years and whether you have ever defaulted on a loan repayment or had a court judgement or bankruptcy procedure issued against you.

Armed with all of this evidence, a lender is in a good position to make a judgement about whether or not you can comfortably afford the loan repayments. Of course, the bank or lender will also take into account everyday living expenses which have to be paid for. So even though your income may be sufficient to cover all your outstanding liabilities, you will also have to prove that you can afford other things like electricity, groceries and any other day-to-day living expenses.

Taking all leased things into account, a lender made decide to decline application because:

* The applicant has insufficient income to meet loan requirements as well as other expenses.

* The applicant has a poor credit history and has defaulted on previous loans.

* The applicant has not been with his or her current employer for long enough, or may still be serving a probationary employment period.

As you can see, there are plenty of reasons why a lender could decline an application for car finance because everyone is considered individually on their own merits.

by: Craig O'Shannessy

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