Applied for a loan but did not get approved? Don’t feel bad. There are things that you can do to turn things around, and make it better for you.
Here’s what you need to know and do if your loan application is rejected.
Reasons for Rejection
The first step is to determine the possible reason your application was rejected. Most lenders are willing to explain to you why you did not get approved.
Some of the common reasons include:
- Bad credit or no credit – Lenders look at the borrower’s credit history before approving a loan. A high credit score is a sign that you are financially responsible and that you are most likely to fulfill your loan payments. If you have a low credit score, or if you have no credit history at all, this can be the reason that your application was not approved.
- Insufficient income – Another area that gives weight to your loan application is your income. Your application is more likely to get a nod if you have sufficient income as this signifies that you will be able to make the minimum monthly payment required.
- High debt to income ratio – Aside from your income, the lender will also take a look at your debts. If you have too many debts and not enough income, it’ll be grounds for disapproval.
It’s also possible to be declined for reasons other the ones mentioned above. Discussing this with your lender will help you know what’s wrong with your application, and how you can improve it to get approved next time.
Before You Re-Apply
Of course, you don’t want to give up just like that. You would want to take another chance to see if you will get approved the second time around. But do not re-apply without doing these steps first:
- Boost your credit rating – If you have a low credit score, take the time first to improve it before applying for another loan. You can boost your credit score by resolving your debts, and making on time payments with your bills. You would also want to get a free copy of your credit report at TransUnion and check if there are any errors. These errors may be causing your credit report great harm so you need to dispute these immediately.
- Build your credit history – Now if you do not have any credit history at all, you would want to start building it. You can begin by using a credit card, and making sure that you pay each monthly due on time.
- Pay off your other debts – If your high debt-to-income ratio is the reason your loan application was not approved then it’s best that you resolve your other debts first. You can start by formulating a budget that includes debt payments. This will help you clear your debts more quickly.
- Increase income – For those with insufficient income, it’s a good idea to generate more earnings by getting a second job or opening a business. There are also many ways to earn extra cash online, and you can use any of these to increase your income.
Other Strategies to Consider
There are other techniques that you can also consider, and these are:
- Putting down a larger down payment – Putting down a larger down payment will not only increase your chances of approval but will also mean that you are borrowing less money. You will then have to make lower monthly payments.
- Using a collateral – This is helpful if you are applying for a personal loan or business loan. Offer something of value to secure the loan but be aware of the consequences, which is repossession or foreclosure.
- Getting a co-signer – If you have poor credit rating or insufficient income, getting a co-signer for the loan will give you better odds.
- Look for a different lender – One lender might have rejected your application, but this does not mean that all the other lenders will do the same thing. Take a look around the financial market and find other reputable lenders where might have a better chance.
Do not lose hope right away. There are things that you can do to make sure that your second loan application gets approved. Good luck!