Congratulations, you’ve made it! Now that you are officially a fresh graduate, the rest of your future is here. With that, you might have secured a job and are now on the lookout for your first car.
However, getting your loan approved as a fresh graduate can be difficult because of stringent bank criteria. Here are five common reasons why banks may be rejecting your car loan application.
Related article: How are Car Loans and Interests Calculated?
1. You Don’t Have a Credit Score
When applying for a car loan, 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 CTOS and CCRIS reports to evaluate your credit health.
However, CCRIS does not calculate a credit score, instead, it lists your credit information from financial service providers including insurance brokers, telecommunication companies and of course, banks. This just means they can see every financial commitment you have.
On the other hand, CTOS generates a credit score as a three-digit number. Your credit score is generated by calculating the percentages of the following:
- your payment history;
- other loan amounts;
- length of credit history;
- new credit applications; and
- your legal track record
The higher you score, the better – any number below 651 is viewed as below average and it might dent your overall application. You can view the CTOS’ credit scorecard here.
As a fresh graduate, you may not have a credit score as you do not have any loans under your name. So on the CTOS scale, your credit score falls under “No score”. Because of this, banks are unable to determine your financial status and decide if you can afford the loan. Hence, banks are more wary of lending to you because they have no assurance that you will be able to repay the loan amount.
2. You Are Newly Employed & Cannot Supply the Required Documents
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 stable income to finance the loan.
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.
3. Your Debt Service Ratio (DSR) is Too High
But let’s say you have been employed for at least six months but in the months prior to that, you took up a credit card – this will then be reflected in your CCRIS and CTOS reports. From there, banks will refer to these credit obligations as your monthly financial commitments. They will then calculate your Debt Service Ratio (DSR) to find out if you can afford another loan (the car loan you applied for).
This DSR 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.
The DSR is calculated by dividing your monthly financial commitments (loans, credit cards, etc.) with your total monthly income.
4. Your Guarantor’s Documents Are Not Strong Enough
One way to strengthen your loan application is by using a guarantor. A guarantor is someone who will be legally bound to settle any outstanding amount if the principal borrower (the loan applicant) defaults.
Banks are more likely to approve your application if you have a strong guarantor because if anything happens, the guarantor will be obligated to settle any unpaid portion of the loan. So, if you have tried to apply with a guarantor but your loan was still rejected, it may also be because your guarantor was not strong enough.
“Strong” in this sense refers to your guarantor’s financial status and if they can afford the commitment should you (the loan applicant) 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.
5. Car Loan Approvals Are Tougher During the Pandemic
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.
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. But fortunately, most banks in Malaysia now offer graduate schemes that you can apply for if you’re buying your first car as a fresh graduate and CARSOME also has a product specially for graduates to finance their first car easily.
You Can Try to Apply For a Graduate Scheme
As a fresh graduate, it will be quite impossible for you to prepare all the required documents needed to apply for a conventional car loan. Apart from that, you’ll also need to fulfill other loan requirements such as submitting your latest pay slip and preparing at least 10 percent of the down payment for the car you want to buy.
But with a graduate scheme, you can own a vehicle without having to prepare a hefty down payment, submitting various documents, or a high minimum wage. If your application is approved, you’ll be able to finance up to 100 percent of the car price with a loan tenure of up to nine years but with an interest rate that is slightly higher compared to conventional car loans – around 0.10 to 0.20 percent higher (normal interest rates will vary from 2.8 to 4.5 percent).
Here’s a list of local banks that provide graduate schemes if you’re interested in applying for one:
- CIMB – First Car Financing
- Bank Muamalat – Muamalat Auto Grad Scheme
- Bank Rakyat – Vehicle Financing-i (An Naqlu 2) – Graduate Scheme
- Maybank – My First Car Plan
- Bank Islam – Vehicle Financing-i GradONE
To be eligible to apply for the graduate scheme, you must be:
- Aged between 20 to 35 years old*
- Must be a graduate with a minimum qualification of Diploma or Degree*
- Application must be made within five years from the date of graduation*
- Minimum wage of RM1,800 and above*
- Must earn a fixed salary*
- Only applicable for new national car purchase
*Requirements may differ based on the bank and their terms and conditions.
If you’re eligible to apply for a graduate scheme loan, here’s a list of all the documents you need to prepare for your application:
- Copy of MyKad
- Copy of Driving Licence
- Copy of Certified Diploma/Degree or transcript
- Copy of Employment Offer Letter
- Copy of latest three months salary slip (if applicable) and/or copy of latest three months bank statement (if applicable)
*Requirements may differ based on the bank and their terms and conditions.
**Banks reserve the right to request for additional documents.
Or You Can Get Your First Car With CARSOME Capital
Banks perceive that fresh graduates carry a higher financial risk compared to borrowers from older age groups. This is why their loan applications have a higher chance to be rejected. Hence, CARSOME Capital has launched a 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.
This is because CARSOME Capital 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:
- Apply with an Employment Letter of Offer: All it takes is showing your offer letter. This is to prove you will have income to support the loan repayment. This is great for graduates who have just accepted their first job, or have just recently secured a new job, as you don’t have to provide up to six months of income documentation as 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. This is different from the conventional guarantor that common banks require. For CARSOME Capital, you can supply any form of income from your comfort guarantor with no minimum requirement.
- Driver’s License and Identification Card (NRIC): You will need to provide your NRIC and driver’s license. Your parents also need to submit their NRICs as a comfort guarantor.
To top it off, you can conveniently repay your loan amount via Jompay. However, you can only apply for this auto-financing option when you buy a CARSOME Certified car.
Buy a CARSOME Certified Car for Quality Assurance
All CARSOME Certified cars have passed our strict 175-point inspection to make sure it is free of major accidents, frame or flood damage. Besides that, CARSOME Certified cars are reconditioned and come with a CARSOME Promise. The CARSOME Promise is our assurance for you to have total peace of mind in your purchase.
This is our CARSOME Promise to you:
- Five-day money-back guarantee: If you buy a used car from CARSOME and you happen not to like it, you can return it back to us within five days to get your full amount back. No questions asked!
- Professional inspection: All CARSOME cars go through an inspection that covers 175 points to ensure it is free from major accidents, frame, fire, and flood damage.
- One-year warranty: Your journey with us does not stop after you buy a car. We will give you a warranty for coverage in your first year.
- All-inclusive price: The price you see on our website’s listings is the actual full price of the car with absolutely no hidden fees. We practice full transparency in our cost to ensure you know exactly what you are getting.
So, if you are keen on buying your first car with CARSOME, head over to carsome.my/buy to choose the wheels you want. Following that, you can book an appointment to view the car (we 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!
This article is also available in Bahasa Malaysia here: Pinjaman Kereta Ditolak? Ketahui Sebabnya & Cara untuk Membeli Kereta sebagai Graduan Baharu