It’s painful when a bank rejects your application for a vehicle loan. While you may be disappointed, it’s important to understand why your application was declined, so that you can improve your chances of success next time.

The first step is talking to the lender to find out what happened. Most of the time loans are turned down for one of the following reasons:

Your credit score

A poor credit history is most often the reason an application for car finance fails. How you handle credit – the amount of credit you use and whether you make the payments on time – determines your credit profile, which is summed up in your credit score. If your credit score is low or your credit profile shows a history of missed payments, you are more likely to be refused credit, because you are a high risk.

You can check your credit score for free whenever you like on the Money app. We also have several blogs outlining what affects your credit score, how to keep it healthy, and what to do if yours needs to be better. A good rule of thumb is to keep your credit use to 30% or less of your available credit limit.

Affordability matters too

Affordability is another key factor in vehicle finance applications. To determine whether you can afford a car loan, the lender considers the size of your discretionary income. This is the amount left of your after-tax salary once you’ve paid all your monthly expenses, debt repayments and other financial commitments. If your discretionary income is too low to afford the payments, a vehicle loan application will be declined.

Increase the chances of your vehicle finance being approved by making an honest list of your expenses before applying. MFC, a division of Nedbank, has an online calculator to help – you can check affordability before you go car hunting, so you know what size loan you can afford, and stick to cars in that price range.

Your financial behaviour and credit history will always be factors when you apply for any kind of loan, so be responsible with credit

Another way of overcoming the affordability hurdle is to put down a sizeable deposit, which lowers the loan amount you’re applying for. This will require you to save for the deposit first, of course. If you set yourself a savings goal and a timetable, you can lock those savings away in a fixed-deposit or notice account. Not only will your money grow faster so you can reach your goal sooner, but you’ll also be protected from the temptation to spend that money on something else.

Or your solution might be to extend the term of the loan – paying it off over 72 months or more, for example, rather than 60 months. That will make the monthly instalments more affordable, although it does mean you end up paying more interest in the long run. A vehicle loan with a balloon payment is also an option to improve affordability – your monthly instalments are lower, but you are expected to make a larger payment at the end of the loan term. If you take this route, it’s important to start a savings account when you take out the loan to make sure you will have enough for the balloon payment when you need it.

Don’t forget the ongoing costs of vehicle ownership

The simplest way to ensure affordability may be to buy a less expensive car. Working out what you can afford beforehand alerts you to other ‘hidden’ costs of buying a vehicle, like insurance, registration, fuel and maintenance. Like other forms of debt, your car finance must be responsible debt – it must improve your life, and you must be able to pay it back without difficulty.

Once you understand the reasons a vehicle finance loan application was declined, you can take steps to improve your credit score over time, so that you can succeed next time. Your financial behaviour and credit history will always be factors when you apply for any kind of loan, so be responsible with credit. Don’t overburden yourself with too many financial commitments that could come back to haunt you.