Loan application rejection can become your worst nightmare, leaving you clueless about what to do next. Upon rejection, some of the common questions to think about are:
– Why was I rejected?
– How long shall I wait to reapply for a loan?
– What preventive measures can I take to avoid further rejection?
– How can I improve my application?
It is extremely important to know the underlying cause of the rejection so you can prevent it from happening again.
Understand the Nature of the Problem
First and foremost, try deducing why your loan was rejected. Most lenders will tell you the underlying cause of your rejection. However, the common reasons for denial are – Poor credit score and insufficient income stream.
A financial institute will look into your credit score to evaluate if you are eligible for a loan. Your credit report will provide them with a detailed account of your repayment pattern and borrowing history. A good credit score increases your chances of getting a loan. Likewise, if you have been inconsistent with your repayments and have a poor credit score, then your chances of getting a loan approved may be bleak.
Further, a lender will also want to know that you’re capable of making monthly payments. For this, you will need a stable income stream. Lenders calculate your ability to repay by using the debt to income ratio. A comparison is done of your earnings, expenditures and debt repayment to gauge if you will be able to afford to take on new debt or not.
Finding a Solution
Once you have evaluated the potential reason behind the rejection, the next step is to find a solution. While some issues can be dealt with urgently, others may need time. Depending on the issue at hand, the following measures may need to be taken:
– Resolve Errors In Your Application
A common mistake by borrowers is that they present financial institutes with faulty credit reports. However, by eliminating the errors and rectifying the mistakes you can strengthen your position to secure a loan.
– Pay Your Debts
Many borrowers don’t realise that the primary cause of rejection is their other loans. While granting you a loan a lender will evaluate your ability to make a repayment. Thereby, by cutting down on your expenditure and paying your debts, you can strengthen your position as an applicant.
You can also make a bigger down payment to strengthen your chances of securing a loan.
– Consult a Loan Expert
Consult a loan expert about the different financing options you have. Many times, a bank loan may not be the right choice, due to poor credit history, lengthy and stringent procedures. However, by talking to a loan expert you can derive alternate possibilities that may streamline the process.
If your loan application has been rejected, understand that it is the decision of one lender. There are other possibilities that you can take into consideration and a different lender may approve of your application. It is not a sane choice to apply at the same place where you have been rejected. Credit unions, local banks and online money lenders can grant you a loan.
For instance, you can apply for quick loans that require less documentation and have a fast decision-making mechanism. An applicant simply fills a form – the online quick loan lender evaluates your application and makes a decision on the basis of your ability to make repayments. The process is simple and efficient.
– Find A Co-signer
If your credit history and income are insufficient, you can improve your chances of securing a loan by adding someone else’s credit report and income to your application. Thereby, if you fail to make the repayment the bank will not just come after you, but also your co-signer.
Finding a person who understands your financial situation and is willing to take the risk is relatively hard to find.
– Improved Income
Improving your income stream can help you in securing a loan. For instance, if you plan to quit your job do it once your application has been processed. Likewise, if you have a major expense scheduled work extra to improve your income stream. While it is easier said than done, improving your income will strengthen your loan application.