When I dealt with consumer loans, I dealt with a lot of people who wanted to buy a car.  While each application is unique, there are a few things that always stick out in my mind as “red flags” when somebody is applying for a loan.  Since most young people have little or no established credit, if you plan on trying to finance a vehicle, take a look at some of the application mistakes, and avoid them at all costs.

1.  Multiple Loan Signers:  I expect to see one person applying for a car loan, or maybe even two.  As long as I can see a legitimate relationship between the two applicants, I don’t have a problem.  Occasionally, there will be three or more people trying to apply for credit to make a vehicle purchase.  As a matter of policy, some lenders won’t even look at these types of applications.  While others will, there should be extreme circumstances before you try this.  When I see three applications, I also look at three credit reports, three sets of income verification, and three stories as to why the third person is needed.  What usually happens, is that there is some aspect missing from one or more of the applicants that will cause a denial.

2.  Dishonesty in the application process:  I know that mistakes happen, but when you are filling out a loan application, you are also telling me that you are affirming that what you said in the application is true and accurate.  As soon as I catch a lie, that loan will almost always be denied.

3.  Job Hopping:  When you are young, you usually don’t stay in a specific job for a while.  This is a huge red flag for loan officers.  We are going to look for at least two years of steady employment, and when we see several jobs during that period, we question that you will be able to make your payments on time.

 4.  Be Prepared:  If you are shopping for a car, you know that you will usually have to follow some sort of application process.  This process almost always includes some form of income verification.  The easiest way for you to do this is by applying for your loan at the same place you have your banking.  The most common way is by providing copies of pay-stubs or of filed Federal Tax Returns.  Some people wind up having to scrap a really good deal because they weren’t prepared for the application process that they were starting.  Morale:  Always carry your income and work verification when you are doing your shopping.  That makes you one step closer to completing the sale.

 There are of course, others things to be aware of when you are applying for an auto loan, but this will help you to avoid common mistakes.  In the next few posts, I will be going over some more of these common mistakes, so stay tuned. 

  1. W's wife says:

    In the biz, one ‘red flag’ I would constantly see is a young person buying too much car for them. If young adult plopped down at my desk and when asked about what kind of car they were thinking of getting would respond, “I don’t know something like around 30k,” my attitude now would be, “how fast can I get rid of this person, he’s going to get denied.” If you are going to finance a car keep in mind that although you may want the Cadillac Escalade, your paycheck says you can afford a Kia. And that’s okay… for now.

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