After being rejected for a loan it can leave you confused on what to do next. You will want to reapply as soon as possible but you might not be sure why you were denied or how long you need to wait before you reapply. If you don’t understand what went wrong it’s more than likely that you will continue to be rejected until the issue is resolved.
This could happen for any type of loan that you apply for such as home loans, credit cards or even a business loan. Here is what you should be doing if you do get rejected for your loan.
What went wrong
The first thing you should be doing is trying to understand why your application was rejected. Lenders normally are happy to give you a reason why it was rejected and in some cases are required to.
Most people get rejected because of the following reasons;
- Bad credit
- Low income
When you apply for a loan, lenders will look at your lending history and assess your credit scores. They want to see your repayment history and if you are suitable for the amount that you want. If you do have bad credit due to financial hardships or not borrowing at all it could prove difficult to get a loan approved.
If your credit was the reason you got rejected the lender will be required to provide you with the information stating that it was the reason for the declination of the application, providing reasoning and explaining your rights.
If you can’t make the minimum you won’t be accepted for it. Usually lenders will use a debt to income ratio to see how you will handle the payments. They compare how much you earn on a monthly basis with how much you will be spending.
After you know what the reason for your declination is you can start working on a solution. Here are some quick steps you can take to benefit your situation.
Short term resolutions
If you notice that you have errors in your credit report you should aim to fix them immediately. You do have the right to have a mistake removed and won’t be punished for a typo in your report.
Down payments or collateral
Larger down payments initially will reduce the monthly payments and help get your loan approved as soon as possible. Lenders are also more lenient when it comes to lower risks loans and could be willing to approve you even if you do have a bad credit score.
If you are trying to apply for a business loan, using collateral could help you get approved. You should aim to put something up in the chance that you can’t pay off the loan so the bank will see the loan as lower risk.
Long term resolutions
You shouldn’t just be looking short term to help your borrowing capabilities. You also need to look long term to help you in the future.
Build your credit score
Building your credit score will make it easier for you to borrow in the future. Paying loans on time will gradually improve your score and help you get better interests rates.
Reduce your debt
Existing loans affect how your capability to get a new loan. Reducing your old debt will help increase the amount available to help with monthly payments for new loans.
Increase your income
Obviously the more money you make the more you will be able to borrow. As this is looking at a long term resolution promotions and career progression is a likely solution to help you with your loans. Look at strategies and planning to optimise your paycheck to ensure that you have more money available at the end of every month.
What to do before you reapply
Before you apply for another loan, look at yourself and your documents in the same way that a lender would. Are there any noticeable red flags and if so what can you do to overcome this limitation?
If you are really stuck on the process of reapplying, you should look at getting the services of a finance broker. They have the experience and expertise in helping people with bad credit get the short term finance that they need.
Finance brokers can also help you fix errors that you may have trouble with or identify the reasons to why you were rejected in the fist place.