Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: May 15, 2013

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Before approving an auto loan, lenders use a set list of criteria to gauge a borrower’s credit worthiness. The criteria include a borrower’s credit score, repayment history and overall credit history.

Borrowers with high credit scores and reliable sources of income can count on receiving money easily and usually at a low cost. Those with low credit scores will have to pay more in interest on their loans, but borrowers with poor credit histories often have no access to financing at all.

Before you apply for an auto loan, examine your credit history and check for the following traits that will red flag your account in the eyes of lender.

Low credit score or no credit history

In the years following the recession, getting an auto loan has actually become a lot easier for borrowers. In 2012 the median credit score of an approved auto loan borrower purchasing a brand new car was 760, down from a peak of 776. For used car borrowers, the median score was 659.

For borrowers with subprime credit scores, however, convincing lenders you’re not a risk can be difficult. Credit scores fall into five tiers: superprime (740 and above), prime (680-739), non-prime (620-679), subprime (550-619) and deep subprime (below 550). If your credit score falls into the subprime or deep subprime categories, it will be difficult to secure an auto loan.

Additionally, because the length of your credit history is so important, young borrowers, or borrowers with no credit history, will also find it difficult to get approved for an auto loan.

Poor repayment history

In addition to your credit score, lenders will also check to see how you’ve handled credit in the past. If you recently declared bankruptcy, had a vehicle repossessed, or have significant outstanding loans, that more than likely played a part in the rejection of your auto loan.

Employment history

Your lender will want proof of your income. If you are in between jobs or just started a new job, your chances of being approved for your auto loan are slim. The longer you’ve held a job, the more stable your employment situation will be in the eyes of your lender.

How to improve your odds

To improve your odds of being approved for an auto loan the next time around, you should focus on improving your credit score and gaining solid employment.

Fix your credit score by paying your bills on time, every time. Repayment history is the largest part of your score – once you show that you can be trusted with credit, your score will improve, and lenders, including car loan lenders, will be more likely to trust you. A better score combined with solid employment history will drastically improve your odds of being approved if you decide to reapply.