Home LivingAutomotive Looking to buy your first car? Here’s everything you need to know to avoid having your car loan rejected

Looking to buy your first car? Here’s everything you need to know to avoid having your car loan rejected

by Grace Sundram

You may have gotten a job and are looking for your first car now. However, due to rigorous bank requirements, getting your loan authorised as a recent graduate might be tough. Here are five typical reasons why your auto loan application may be rejected by a bank.

No credit score

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When applying for any loans, you’ll definitely hear the terms Central Credit Reference Information System (CCRIS) or Credit Tip-Off Service (CTOS). CCRIS is managed by the Credit Bureau of Bank Negara Malaysia, whereas CTOS is a private agency. Most financial institutions in Malaysia use both CCRIS and CTOS reports in evaluating your credit health and score.

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As a fresh graduate, you may not have a credit score as you do not have any loans under your name. Arising from this, banks are unable to determine your financial status and decide if you can afford the loan. Hence, banks are warier in lending to you because they have no assurance that you will be able to repay the loan amount.

Newly employed & cannot supply the required documents

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When applying for a car loan, you will need to present your financial documents which include payslips for employed individuals. Most banks require at least six months of employment history to ensure you have a stable income to finance the loan.

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Unfortunately, as a fresh graduate, you might have just scored your first job which means you have to wait at least six months before applying for a loan. Other supporting documents required include your Employee Provident Fund (EPF) statements, which you won’t have unless you have been employed before.

Your Debt Service Ratio (DSR) is too high

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If you took up a credit card, this will be reflected in your CCRIS and CTOS reports. From there, banks will refer to these credit obligations as your monthly financial commitments, where they will calculate your DSR to find out if you can afford another loan.

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The DSR is calculated by dividing your monthly financial commitments (loans, credit cards, etc.) by your total monthly income. It is important because it can make or break your application – in essence, it measures if you have enough cash on hand to sustain a lifestyle after deducting your monthly commitments. Every DSR limit is different in each bank. For example, if a bank’s DSR limit was 70 percent, any DSR percentage above 70 would most likely be rejected, or subject to closer review. A healthy DSR would be between 30 and 40 percent.

Your guarantor’s documents are not strong enough

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One way to strengthen your loan application is by using a guarantor, someone who will be legally bound to settle any outstanding amount if you, the principal borrower or loan applicant, default. Banks are more likely to approve your application if you have a strong guarantor.

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“Strong” in this sense refers to your guarantor’s financial status and if they can afford the commitment should you fail to comply with the repayment terms. A guarantor will need to submit their income documents as well for the bank to ensure his or her financial standing is acceptable.

Car loan approvals are tougher during the pandemic

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On top of the reasons above, banks have become stricter in car loan approvals. Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad said applicants are faced with longer approval times because lenders are adding on to the criteria required for approval. This includes whether the potential borrower is working from home, or what type of industry they are involved in.

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Sadly, this makes it harder for graduates, especially now, to finance a car – those who have just scored their first job may need to forego their plans on owning a car during these times. Fortunately, though, Carsome has launched a product specially for graduates to finance a car easily.

You can still get your first car with these easy steps

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Due to the loan rejections on graduates, Carsome Capital has launched an easy and hassle-free solution where fresh graduates, or those with a minimum of a Degree within five years of graduation, can now secure their first car.

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This is because the scheme allows graduate applicants aged up to 35 years old to apply with just their Employment Letter of Offer. You can also apply for a loan tenure of up to nine years, which means you can have a more affordable monthly payment amount. Here are the full requirements:

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  • Apply with an Employment Letter of Offer: All it takes is showing your offer letter to prove you will have the income to support the loan repayment. You don’t have to provide up to six months of income documentation you would with a conventional bank.
  • Hold at least a Degree certification: You are eligible as long as it is within five years from your graduation date.
  • You only need a comfort guarantor: You can apply with your parents as a comfort guarantor with no minimum requirement in terms of income for your comfort guarantor. This is different from the conventional guarantor that common banks require.
  • Driver’s License and Identification Card (NRIC): You will need to provide your NRIC and driver’s license. Your parents, as comfort guarantors, also need to submit their NRICs.

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This auto financing option is only available when you buy a Carsome Certified car. So, if you are keen on buying your first car from Carsome, head over to their website to choose the wheels you want. Following that, you can book an appointment to view the car (they also offer virtual appointments during lockdown), and if you like it, just buy it with Carsome Capital’s auto financing option. It’s super hassle-free.

With that, we wish you many safe drives with your car ahead.

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