As per Malaysian Automotive Association’s (MAA) reports, during the tax holiday, there was a surge in car sales in Malaysia. With new makes and models of top brands being released every year, there is a great scope for car sales in Malaysia.
With so many car financing schemes available, it has become easier for Malaysians to own a vehicle. However, it’s also true that quite a few car loan applications get rejected owing to various reasons.
Here are some of the most common reasons for why your car loan is rejected:
- Poor Credit Score
- No Credit History
- High Debt Service Ratio (DSR)
- Credit Report Inaccuracies
- Application Errors
- Unstable Job
Let's look at one by one.
Poor Credit Score
When you apply for a car loan, banks will go through your credit score to check if you have the ability to make repayments. If you have CTOS score of 650 and below, you will find it difficult to get a loan or any other financial products easily.
Moreover, if you have applied for a car loan and any other loans with a fair credit score, there are high chances for banks to reject your application.
- For those with bad credit history, work towards improving it before applying for a loan.
- Check your credit rating before applying to avoid disappointment.
No Credit History
Your credit history tells lenders how efficiently you manage your finances. Without having a credit history, banks cannot evaluate your creditworthiness. So if you approach banks for a loan, they would hesitate to give you one.
CTOS and other credit bureaus consider the length of the credit history. With a longer duration, you give the impression that you have the experience to handle finances efficiently. Even after establishing credit, you need to maintain it for a few months before applying for a loan.
- One of the ways you can establish credit history is by applying for a basic credit card. Make sure you use your card regularly and pay your monthly instalments on time.
High Debt Service Ratio (DSR)
DSR is used by banks to evaluate if the applicant is eligible to borrow funds or not. It is calculated by taking the ratio of the applicant's loans, taxes, and other debts to their gross income. The higher the DSR, the higher the chances of loan rejection.
If you fancy the latest model of a high-end car when you earn just RM2,000 per month, your DSR would naturally increase.
- Stick to your budget and look for makes and models within a particular range.
- If you still want a high-end car, you can opt for a used car.
- Before applying for a loan, check your DSR manually. The DSR could be different from one bank to another, but will give you an approximate idea.
Credit Report Inaccuracies
Any errors on your credit report can affect your credit score. Every loan enquiry you make will be recorded in your report. However, if someone has been using your name and details to enquire about any financial products, it will reflect in your credit report. Too many enquiries can even affect your score. So you need to ensure that your credit report is error-free.
- Check your credit report regularly. If you notice any inaccuracies, you need to report it to the credit bureau.
Most people find filling in forms quite a hassle. If you have made any mistakes in your application form, your loan will get rejected. A tiny error like a wrong MyKad number, misspelt name, or a typo in your address could be a reason for loan rejection. Also, if you were supposed to submit a set of documents and you forgot to submit one of them, your application could get rejected.
- Always check your application form before submitting it.
- Ensure you submit all the mandatory documents requested by the bank.
One of the supporting documents you need to submit is your last 3 months’ monthly salary slips. The bank asks for this document to check your proof of income. If you have been changing jobs very often or you work on contract, it will reflect on your salary slip. Banks can label you as a risky applicant if they notice that you frequently switch jobs or have been unemployed for some time.
- Before applying for a loan, ensure you are working in a company for at least 6 months.
- If you have an unsteady job and need a vehicle urgently, you can apply for a car loan with the help of a cosigner.
If your auto loan was denied, you don’t have to worry. You can use the above guide to ensure that there are no mistakes from your part before you apply. In Malaysia, you can apply for any of the following car loans – conventional and Islamic car loans, as well as new, used, and reconditioned car loan.