Anyone who has gone through a long process of the loan application in the bank knows how hard it is. You must collect all the necessary documents and provide a business plan for the financial business advisor to evaluate. And, then, there is a long wait for the loan approval. But what should one do if the application has been rejected? Let’s look at the top reasons for loan application failures and how to fix them.
Define The Reason
Find out the reason why your application has been rejected. For example, the bad credit and unsteady income are most often responsible for loan processes mishaps.
Bad (No) Credit
Bad or no credit turns borrowers into risky cases. If you have a history of taking loans and had troubles repaying them, the record will show this thus leaving you no chance of borrowing again. Unlike with the unsecured loans online where the private lender does just a soft credit check on you, the banks are very careful about trusting you with credit.
No credit history can be unappealing as well, as you can show any proof of financial responsibility. There is always a chance to improve your credit score or create a clean good one, though.
As unreasonable as it may seem, you need to have money to borrow money. The banks must see you’ll be able to make a minimum down payment, preferably on time.
Make sure your credit history shows a good debt to income ratio, the ability to repay the loan compared to what you make a month.
Serving a continuous time at one job translates into stability and the ability to repay the loan under any circumstances. Nowadays many loaners specify the amount of job time they require: at least one year at one place or two years of experience on the job in total.
Incorrect Details In Application Form
Make sure you provide all the necessary paperwork for the lender to have a full picture of your banking information. Fill in the personal and banking details accurately because the slightest conflict between provided documentation and the lender’s check results will lead to a rejection.
A Questionable Loan Purpose
You have to specify the loan purpose for a reason. Provided the loan purpose you apply for isn’t credible, your application will be rejected. In case you take a secured loan, make sure there is collateral to cover that. When applying for car finance options, make sure there are no age restrictions on the car model of your choice.
So, what to do if your loan application is rejected?
Meet The Consequences
Don’t rush into another loan application right after you’ve been rejected. Deal with the reason of the application denial and fix what needs to be fixed.
Despite giving you the reason for the rejection, the lender will gladly provide advice on how to make you a more attractive bank client. Check your credit reports before reapplying. Try to view yourself from the lender’s perspective.
Fix The Credit Reports
Three times a year. This is the perfect time frame to check your credit report for any mistakes. Be sure to use the quick rescoring as well. This is the service used by lenders to remove any bad credit signs from your report. Executing the rapid rescoring, you’ll be able to remove negative items from it, reduce loan balances, and fix any existing errors.
Pay Off The Existing Debts
Applying for loans too often can be a worrying condition for another loan application. Pay off the existing debt before reapplying. If impossible to cover the debt quickly, make bigger down payments.
When applying for a personal or business loan, collateral will serve a perfect security for the lender. Just remember that in case you fail to repay the loan, you’ll lose collateral.
Apply With A Cosigner
Your friend or relative can have a bigger income or a better credit history than you do. This way you both can co-apply for a loan and have better odds of being approved. Notice that the co-signer will be equally responsible for loan repayment.
In The Long Run
The above is the quick fix that one might use to improve chances of being issued with a loan. Inevitably, you have to build a good credit score to have better prospects of financial stability.
To ensure the high chances of loan approval, always make down payments in time and be sure to repay more than a minimum. Pay off all kinds of debt you have in order not to be consumed by it. Finally, find bigger income possibilities. Since most people apply for loans, not for the fun of it, it may sound unrealistic to earn more money. But, loan applications imply responsibility and to ensure that you will repay the loan, take a hard look at your finances and put off big purchases for later or find extra sources of income.
Loan application process may take time and effort, but if you do everything right, you’ll be looking at a loan to fix your financial state quickly without harming your credit score but only improving it.