Business / Your Money
How to recover after getting rejected for a personal loan
06 Sep 2019 at 01:10hrs | Views
A lender turning down your personal loan application can be a serious blow to your finances. If it was your last option, you'll be in a more difficult position, especially if the situation is urgent such as fixing a leaking roof or debt consolidation.
While all this can be frustrating, it can also act as a stepping stone for better days to come. Look at it positively and find the reasons to why the lender rejected your application. If you don't know where to start, here are a few helpful pointers.
1. Ask Why They Turned You Down
It's frustrating and demoralizing, to say the least, after a lender turns down your loan application. Many lenders don't give you the reason for the loan rejection. You're left to figure it out for yourself. With many factors going into a loan application, you'll have a hard time trying to narrow it down to a specific reason. That's why the Equal Credit Opportunity Act requires that all lenders provide their customers with reasons why they turned down your personal loan application.
Some of the reasons that may deny you a loan approval include a poor credit score, lack of collateral, insufficient or lack of income to make the monthly installments.
2. Repair Your Credit
If one of the reasons for your loan rejection is poor credit, repairing your credit is the next step. This is possible by making on-time payments on all outstanding debts. Also, make sure you maintain a low credit balance, but that's not all:
● Weed out errors in your credit report: Did you know that at least 25% of consumers have incorrect entries on their reports that were not of their making? Now you know. Therefore, don't leave anything to chance. Make sure you analyze your report to weed them out.
● Take out a credit-builder loan: As the name suggests, these loans are specific to people who want to repair their credit. Instead of giving you the loan amount, the bank or lender will hold the money as you make the monthly payments. The lender will then report your good behavior to credit bureaus to build your score. After paying off the loan, you'll get your money.
● Consider becoming an authorized user: For this to work, you must find someone with a strong credit score.
3. Pay All Outstanding Debt
One of the key factors that lenders will look at when analyzing your justright personal loan application is the debt-to-income ratio. To find out your DTI, simply divide your total outstanding debt by the total monthly income.
If the result is more than 40%, you may want to find ways to bring it down such as paying off debts. Otherwise, you're likely to miss out on a loan because the lender will use your likelihood to miss out on payments as the reason to decline.
Start by tracking your expenses to find out which ones to eliminate. Afterward, use the money from these savings to pay off any outstanding debt. Also, you don't want to rack up any more debts, which will be a step forward and two steps back.
4. Increase Your Income
If after cutting back your expenses you still fall short of meeting your debt goals, consider increasing your income. This is also a great way of lowering your DTI. One way to increase your income is to start a side job such as freelancing.
If you have marketable skills, consider signing up on freelance platforms such as Upwork. Some of these skills include web development, copywriting, transcription, video editing, etc. You can also increase the hours at your job or ask for a raise.
After stabilizing your side hustle, apply for a personal loan and this time around, don't just include the income from your day job. Instead, add all your income sources. The lender will see that you have sufficient income to pay off the loan, therefore approving your loan application.
5. Compare Lenders
Loan requirements vary from one lender to another. One lender may turn down your application but another may accept it. In short, before applying for a personal loan, consider shopping around for lenders that cater to consumers like you.
Often, borrowers with a credit score ranging from 690 to 850 will get better deals. However, some lenders still approve loan applications from people with poor scores, but you'll have to pay higher interest.
You can also opt for a nonprofit financial organization or a credit union because they try and understand your whole financial picture. This is instead of looking at only one aspect such as your credit score. The result is you may get cheaper loans, even with bad credit.
6. Prepare for Another Round of Application
Once bitten, twice shy. Before you apply for a personal loan again, make sure you prepare to avoid another rejection. Here's how:
● Prepare all the necessary documents: Your lender will want to verify the information you provided during the application. This includes your income statements and tax returns. Preparing these documents will shorten the process and will also boost your credibility.
● Verify the information provided: Proving false information is one of the reasons many people get rejected for a loan. This includes but not limited to misstating your income or even providing a wrong address. Before turning in your application, take another look at the details you're about to submit.
● Consider using a cosigner: If your score doesn't make the lender's cut, add a family member or a close friend as your cosigner. This will help you get lower rates. However, you must make on-time payments to avoid putting your cosigner's credit at risk.
Getting rejected for a loan isn't a death sentence. In fact, look at it as a wake-up call to get your finances in order. You can mend the situation using the helpful tips_ outlined in this article. However, you must keep in mind, not all solutions will fit you. Also, it takes patience and discipline to recover from loan rejection, so take your time.
While all this can be frustrating, it can also act as a stepping stone for better days to come. Look at it positively and find the reasons to why the lender rejected your application. If you don't know where to start, here are a few helpful pointers.
1. Ask Why They Turned You Down
It's frustrating and demoralizing, to say the least, after a lender turns down your loan application. Many lenders don't give you the reason for the loan rejection. You're left to figure it out for yourself. With many factors going into a loan application, you'll have a hard time trying to narrow it down to a specific reason. That's why the Equal Credit Opportunity Act requires that all lenders provide their customers with reasons why they turned down your personal loan application.
Some of the reasons that may deny you a loan approval include a poor credit score, lack of collateral, insufficient or lack of income to make the monthly installments.
2. Repair Your Credit
If one of the reasons for your loan rejection is poor credit, repairing your credit is the next step. This is possible by making on-time payments on all outstanding debts. Also, make sure you maintain a low credit balance, but that's not all:
● Weed out errors in your credit report: Did you know that at least 25% of consumers have incorrect entries on their reports that were not of their making? Now you know. Therefore, don't leave anything to chance. Make sure you analyze your report to weed them out.
● Take out a credit-builder loan: As the name suggests, these loans are specific to people who want to repair their credit. Instead of giving you the loan amount, the bank or lender will hold the money as you make the monthly payments. The lender will then report your good behavior to credit bureaus to build your score. After paying off the loan, you'll get your money.
● Consider becoming an authorized user: For this to work, you must find someone with a strong credit score.
3. Pay All Outstanding Debt
One of the key factors that lenders will look at when analyzing your justright personal loan application is the debt-to-income ratio. To find out your DTI, simply divide your total outstanding debt by the total monthly income.
If the result is more than 40%, you may want to find ways to bring it down such as paying off debts. Otherwise, you're likely to miss out on a loan because the lender will use your likelihood to miss out on payments as the reason to decline.
Start by tracking your expenses to find out which ones to eliminate. Afterward, use the money from these savings to pay off any outstanding debt. Also, you don't want to rack up any more debts, which will be a step forward and two steps back.
4. Increase Your Income
If after cutting back your expenses you still fall short of meeting your debt goals, consider increasing your income. This is also a great way of lowering your DTI. One way to increase your income is to start a side job such as freelancing.
If you have marketable skills, consider signing up on freelance platforms such as Upwork. Some of these skills include web development, copywriting, transcription, video editing, etc. You can also increase the hours at your job or ask for a raise.
After stabilizing your side hustle, apply for a personal loan and this time around, don't just include the income from your day job. Instead, add all your income sources. The lender will see that you have sufficient income to pay off the loan, therefore approving your loan application.
5. Compare Lenders
Loan requirements vary from one lender to another. One lender may turn down your application but another may accept it. In short, before applying for a personal loan, consider shopping around for lenders that cater to consumers like you.
Often, borrowers with a credit score ranging from 690 to 850 will get better deals. However, some lenders still approve loan applications from people with poor scores, but you'll have to pay higher interest.
You can also opt for a nonprofit financial organization or a credit union because they try and understand your whole financial picture. This is instead of looking at only one aspect such as your credit score. The result is you may get cheaper loans, even with bad credit.
6. Prepare for Another Round of Application
Once bitten, twice shy. Before you apply for a personal loan again, make sure you prepare to avoid another rejection. Here's how:
● Prepare all the necessary documents: Your lender will want to verify the information you provided during the application. This includes your income statements and tax returns. Preparing these documents will shorten the process and will also boost your credibility.
● Verify the information provided: Proving false information is one of the reasons many people get rejected for a loan. This includes but not limited to misstating your income or even providing a wrong address. Before turning in your application, take another look at the details you're about to submit.
● Consider using a cosigner: If your score doesn't make the lender's cut, add a family member or a close friend as your cosigner. This will help you get lower rates. However, you must make on-time payments to avoid putting your cosigner's credit at risk.
Getting rejected for a loan isn't a death sentence. In fact, look at it as a wake-up call to get your finances in order. You can mend the situation using the helpful tips_ outlined in this article. However, you must keep in mind, not all solutions will fit you. Also, it takes patience and discipline to recover from loan rejection, so take your time.
Source - Byo24News
