Can a Car Loan Be Denied After Approval?

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Yes, a car loan can be denied after approval. You just found the right car! Negotiate the price, sign the documents, and drive off. All is well until the lender calls you back and says the loan you applied for has been denied. And they want the car back.

Can a Car Loan Be Denied After Approval?

Although this is not common, there is a possibility that a car loan can be denied after approval. It is definitely a sad situation, and it gets very unpleasant when you have already driven the car off. This article explains why your car loan may be denied after approval and what you can do.

Why Can I be Denied a Car Loan After Approval?

When you get a loan, the dealer will sometimes allow you to take the car even though the loan has not been fully approved. Although the likelihood of the car loan being denied is very low, it can happen. Below are some of the common reasons why.

You are unemployed

The lender will check your employment status when you are applying for financing. If you could not confirm your employment because you resigned, were laid off, or were terminated, your application could be denied.

Your income was reduced

Whether it is because of a reduction in hours by the employer or a job change, the lender may choose to deny you an auto loan because you may not be able to afford the car’s monthly payments.

Unverifiable information

Did you relocate or get a new job after getting preapproved for an auto loan? Are there typos in your loan application? These are the reasons lenders can deny your loan if you don’t let them know about the changes.

Online lenders, banks, and credit unions may not approve your loan if they cannot verify the information you provide in the application, even after you have received the loan preapproval. 

Many lenders will give conditional approval after briefly checking your financial information. And most dealers will allow you to take the car with only this approval. You will have to sign documents allowing them to take back the car if you don’t get final approval. After a few days, the lender will review your information on the application in more detail. If they can’t verify this information, your loan may be denied.

Yo-Yo financing

This is the worst case, because it’s a sneaky trick. Yo-yo financing, also called spot delivery, happens when a dealer lets you take a car home before your loan is fully approved. They just assume that you’ll get the loan, but it’s not guaranteed.

You may be wondering what they want to get from this. The dealer benefits because they will get extra fees or change the deal later. If you return the car to them, they may still get a commission.

If you decide to keep the car, you might end up with a worse loan. The original agreement doesn’t protect you anymore because it wasn’t final when you drove off with the car.

What do I do if I get denied an auto loan after purchasing the car?

Just like I have mentioned above, it is very rare to be denied an auto loan after preapproval, unless there was a mistake or your information changed. Just reach out to the lender and learn why your application was denied. Take the below steps if the vehicle is already in your possession:

  • Provide accurate and updated information: Inform your lender about your new job if you change jobs and get denied because the lender cannot verify your employment status.
  • Check if the dealership can rework the loan: The dealer may be able to work with another lender by providing them with your updated, accurate information.
  • Review your contract: You may be able to find that the lender has no right to cancel the loan agreement. If this is the case, you should consult your attorney to find out the rights that may be available to you.
  • Purchase the vehicle in another way: Make use of personal loans, credit cards, or savings to pay the dealer in full if it is possible.
  • Return the vehicle: if you cannot get a new loan for the car and you have signed a contract with contingencies, you must return the car.

To minimize the odds of your loan being denied, do not make any major changes to your credit or finances until your loan has been finalized. This includes not changing your jobs, if possible.

If you are denied the loan, you will have to work with the dealer to get a new auto loan, return the car, pay for the car in full, or return to auto shopping.