Loan Rejection – Learn Why And What You Can Do
If you’ve recently applied for a loan and were met with rejection, there are some simple steps to follow before applying for credit again.
- Learn why creditors reject loans
- Learn how to improve your next application
- Discover other loan options
Why do creditors reject loan applications?
There are many reasons your loan may have been rejected:
- You have accounts in default on your credit report. Defaulted accounts are defined as accounts that have an overdue payment of 180 days or more, and debt collection activity has begun).
- Your credit report lists missed payments to a credit provider (like a bank), characterized by more than 14 days past the due date.
- Your debt-to-income ratio may indicate to the creditor that you may not be able to afford the loan repayments.
- You don’t have enough savings in your bank account to ensure that you are able to make loan repayments.
Creditors are required to lend you money while upholding a responsibility to only lend if the credit is suitable for you.
If your loan application has been rejected, the creditor may have decided that the line of credit was not a good fit for you, and your credit report demonstrated a high likelihood of not making repayments.
Read more about the Federal Consumer Credit Protection Act here.
What can you do to improve your loan application?
- Request a copy of your credit report. If you find any concerning details listed on your report that look to be inaccurate, take these steps to begin repairing your report.
- Focus on reducing your debts, and learn the repayments you should minimize first.
- Learn how to design a budget so you can build your savings and provide evidence of making repayments on your future loans.
- Reorganize your debts by learning how to employ a strategy of refinancing or consolidating your loans to make your payments more manageable while you pay them down.
- Seek help- if you are struggling with debts you should seek help from local financial counselors to help you get your finances back on track to give you confidence when you next apply for a loan.
Other Loan Options
You can try other creditors to see if they will accept your application but you may risk rejection again. It would be better to pause and assess your financial situation first, pay off some debts, and build your savings before trying again.
It also doesn’t look great on your credit report for you to make multiple loan applications in a short period of time. Learn about specialist loans which come with higher costs but with flexibility for approval.
Find a co-signer
You might be able to strengthen your loan application by asking someone to co-sign for you. Be cautious with this method, though, because the risk lies with the co-signers, and often involves an added stress on relationships.
When applying for a loan in the future, always check the interest rate, fees, and charges before signing the dotted line.
