The feeling of facing a loan rejection is scary when some vital payouts are in the pipeline. It will obviously cause disappointment and nervousness at the same time. This is because that rejected applicant needs to look for other avenues to arrange money.
You will be surprised to know that 6 in 10 loan providers consider affordability to be the biggest reason for rejection. Various surveys have been conducted to determine the exact reason for rejection. However, other factors can harm your borrowing opportunity, too.
Based on the outcomes of a random survey, you can say that even age and location can be responsible. The below representation can help you understand better.
36 people out of 100 of the age group of 18 to 24 years And
35 people out of 100 of the age group of 25 to 34 years
= Get rejected because of their younger age
Some theories also invoke that borrowers with children are most likely to face a rejection from the lender. Besides, if you are managing too many credits at the same time, it can be a red flag. In most cases, bad credit score is held responsible for loan refusal.
This is because this factor is directly related to your creditworthiness. Thus, it enhances the lending risk and lenders prefer not to offer any financial support. Dig deeper to have a comprehensive understanding of what can go wrong in your application.
The journey from loan rejection to approval – easy or tough?
This is a quintessential question, and borrowers seeking urgent assistance are curious about its solution. If the outcome is something you have not expected, it can create confusion. Maybe, you have missed out something.
Loan rejection by one lender is not the ultimate decision. You should first be aware of the problem to understand the recovery route. Point out which of these factors is the culprit in your case.
1. Possible reasons triggering loan rejection
Sometimes, a single or a couple of factors can influence the lender’s decision. Instead of losing hope, you must focus on your recovery. This can help you come back stronger.
Therefore, your primary concern should be to take note of the negative points in your financial profile. Be careful about these aspects.
Low credit scores |
The lender often considers you a weak applicant when your credit scores are not up to the mark. Poor scores directly question your accountability to repay. |
Unstable income |
It is a negative point if you are salaried but not generating sufficient income. You might stagger paying loans on time as your income is insufficient. |
Employment status |
You may not be earning money from direct employment. You may be jobless and dependent solely on benefits. Regular monthly income may be absent. |
Existence of debts |
If your debt-to-income ratio is on the higher side, it is alarming. It indicates that you have more debts and inadequate income. Debts can occupy a major portion of your income. |
Over-dependence on borrowing |
You should borrow money whenever you face some financial hardship. Loans are not a perfect solution in many different situations. This highlights your financial sufferings prominently. |
Lack of security |
If you want substantial money, collateral can be a mandatory requirement. Failing to fulfil it might result in rejection. |
Now, this table must have given you an idea of what factors you must emphasise. Instead of treating it like the end of the journey, gather the courage to improve. Explore the next heading to know what you must do to avert the reasons for rejection.
2. Steps you must pursue to get a positive response next time
This process is not rocket science but pure logic. A combination of the right steps can help you get your finances on track. Moreover, you do not have to go extreme, like start frugal living, in order to overcome this situation.
The recovery should be based on the problem you are facing. Finally, follow a few steps to define the reason for loan rejection.
Study of your credit scores
How can you do that? The simple answer to this is review of your credit report. This document help you point out the actual issue which could be low credit scores.
You can extract free reports twice every year. Now, many of you might not be aware of this very fact. You might have thought that fetching credit reports is difficult.
Overcome this false idea and make the most out of it to spot the hidden factor behind poor scores.
Talk to alternate lending experts
It is not that imperfect credit scores can result in unsuccessful loan approval. Having good credit score is one of the factors that lenders emphasise while processing your loan request. Therefore, it is not the only factor that grabs the attention of the loan providers.
Besides, some alternate lenders focus on deciding the borrower’s affordability. Where do you find them? They are primarily available online as private lenders.
They offer slightly flexible terms and conditions. Thus, when you apply with them, poor credit scores might not be a reason for rejection. Nevertheless, lenders may refuse loan help if your affordability is not convincing.
Prepare yourself to start earning more money
The loan provider might have a confusion regarding your financial capability seeing your earnings. They might find it inadequate to fulfil the loan repayment requirements. Loan rejection oftentimes happen because of this reason.
The best way to sail through this red flag is by amplifying your income sources. If you are doing a steady job, you need to think of starting a part-time job. It can help you earn additional money that you can use to improve your financial situation.
First, try to discuss your concerns regarding salary with your employer. If they get ready to promote you with increment, you do not have to consider the first option. Besides, you can contemplate looking for a better job if your employer denies offering a hike.
There are several ways you can try to add up to your existing salary. You can utilise the surplus earnings to create more savings and become credible according to lenders.
Work on upgrading your credit scores
Although you can find private lenders offering loans with feasible conditions, you must try to improve your credit score. You should not forget that borrowing opportunity with poor scores is limited.
You can only borrow once, as loans cannot directly help enhance credit scores. However, you can use loans to get rid of past debts. Repeat this step over and over to climb up the ladder of credit history.
This is not the only way to focus on for improving scores. Look through these pointers as well.
- Rectify the mistakes in your credit report to see improved scores. It could be a wrong address, invalid late payments, spelling mistakes, incorrect phone number or email ID, etc.
- Getting rid of past financial connections. This is because your old partner might have a poor credit history.
- Sign up for the electoral roll. It helps the lender authenticate your identity.
The bottom line
Do not feel discouraged if your loan application has been rejected. Identify the reasons so that you can do what is needed to get back on your feet. Take special precautions while handling credit scores.