A loan may still be declined, requiring you to re-apply, again and again. You might not know what to do and where to turn. Perhaps, you need to firstly evaluate why your loans were declined, how long you need to take a deep breath before applying again and what steps to take later including how to prevent such thing from occurring again.
There are loans options available to choose from including the auto loans, mortgages, credit cards, personal loans and business loans. Whenever there is a gap between the loan you would desire and the lender approval, it worth narrowing that gap to create opportunities for getting approval when you apply for the loan again.
In this regards, you need to learn what to do if your application is declined. Of course, it is important to take the right steps to avoid the same unwanted things occur again. So, follow carefully our guidance and get inspired!
- 1 Identify Why Your Application Is Denied
- 2 Re-Grouping Before Re-Applying
- 3 Use Short-Term Strategies
- 4 Use Long-Term Strategies
- 5 Conclusion
Identify Why Your Application Is Denied
Once your application is denied over and over again, you need to firstly identify the causes. It is an important primary step since you find the logical reasons. This way, the lenders will feel pleasant to explain and usually provide the disclosure. Thus, you don’t have to despair about the denial.
Generally, most common reasons why a loan application is denied the are:
- Bad and No Credit
When you are applying for a loan, the lenders will usually look at your loan history. This will be reflected in your credit score. The things that the lenders want to know is your solid history about both borrowing and repaying loans. However, the higher amount of how much you owe, the challenges you might have experienced and the even your defaulted on the loans can be the reasons why your loan application was declined.
- Insufficient Income
Lenders will also look at your work and investment as well as other income before they grant you an approval. That is aimed to ensure that you can create only minimum monthly loan payments.
Using some loans like the home loans, the lenders will be asked by the law to consider whether you are able to repay or not. Besides, your loan application can be denied if the lenders guess you will not be able to pay the loans, you don’t earn enough and your income cannot be verified based on the information you provide.
- High debt-to-income ratio
High debt-to-income ratio compares how much you create debt each month to how much you earn. This way, most lenders uses the ratio to determine whether you can manage the payments upon your loan approval. Your loan may be declined if it doesn’t seem that you’ll be likely able to manage your new debt.
- Lack of collateral
Even if you apply for small business loans, the lenders will keep looking at your business personal credit if the business is not well-established. That’s assumed that you will not be able to afford to pay the loans. This way, the opportunities to get loan approved will be complicated unless you (or a business owner) guarantee the loan or initiate your personal asset value as collateral.
- Other issues
There are also other issues that obviously cause your loan to be declined such as submitting an incomplete loan application or having only a short time to justify the loan of the size.
If your loan application was declined, the lenders usually provide you with a notice of adverse action that explains the source of information about why they decline your application and other information about how to gain your credit reports. The notice will give you an idea what to do if your application is declined.
Re-Grouping Before Re-Applying
When you have checked with any disclosures about your declined application, the next thing to do is to regroup before you re-apply. What does it mean?
As knowing the loan application decline is hurtful, you need to save your time and frustration before you reapply. Take a deep breath too see the various aspects of your financial profile that the lenders have checked. Take time to resolve the red flags in your credit.
Consider the “re-grouping before re-applying” idea as follows:
Assess Your Debt and Income
When you save time, that’s aimed to think about assessing your debt and income to find out whether your income is sufficient to repay the loan. It would be better to ask your lenders what they expect about your debt-to-income ratio. Generally, a ratio under 36% will be considerable in the eyes of the lenders.
Evaluate Your Credit Reports
Evaluating credit reports will significantly help recognize the lenders that give you a credit, the credit types you receive and your payment history. Review the reports to identify the cases including the late payments that might lead to why your loan application was decline.
Solve The Problems in Your Credit Reports
If you find any problem in your credit reports, check out the credit bureau the produced your problematic report. A computer error or a fraudster’s actions is not your responsibility. You have the right to have the errors removed.
If you are applying for mortgages, you can have the errors solved and your credit score updated only in a few days if your lender requests a fast scoring on your behalf.
Consult With Your Lender
Before you finally re-apply, you are also recommended to consult with your lender especially when you are not sure that an aspect led your loan application to be declined. The lender will feel pleased to explain what things that are causing the problems and what things that are not as well as how long you need to take before you re-apply after the denial.
Use a small and local institution like a local credit union to help you easily consult with the lender in detail about what to do if your application is declined and you want to apply for another loan.
Use Short-Term Strategies
Believe it or not, short term strategies offer a quick positive effect on your credit score which is may lead to a loan approval. So what are the short-term strategies?
Make A Large Down Payment
Making a large down payment on a car or a house is considered substantial to help your loan get approved. For example, you will get 20% of the purchase price of a house. This strategy also lets you to end up borrow less. This way, the lenders have the lower risk along with the lower loan-to-value ratio comparing the amount of loan to the appraised value no matter you don’t have a good credit.
Collateral is considered good to apply either for personal or business loan. It helps not only get the greater value than the amount of loan which is aimed to secure the loan. Be careful of the risks that include losing home in foreclosure or the repossessed of your vehicle if you fail to create payments. In this case, people only take the reasonable risks.
Go To A Co-Signer
If your income or credit is not sufficient to get the approval, you may be willing to include someone else’s income and credit to the application. This is assumed that you will have better credentials.
A co-signer agrees to have responsibility to repay the loan. However, if you fail to repay, the lender will go after both you and your co-signer. When your credit also suffers, you may use a co-signer who understand more and agrees to take on the risk.
A denial usually speaks to only one lender’s thought about your financial profile. This way, different lenders have their own view and opinion. If you believe that you have strong finance condition, you don’t have to wait for a long time after being ignored or rejected.
Thus, meet the lenders and apply for the loan with them. You may try a local bank or a credit union and check with the online lenders. Along with the loans that the home owner can accesses, you can definitely apply for your loan applications and bring it into a short period (30 to 35 days) to avoid the damage on your credit.
Use Long-Term Strategies
The next strategies dealing with what to do if your application is declined is to use long-term strategies. When your loan application problems cannot be resolve in a night, it is considered perfect to consider the long-term strategies. What are they?
Build a strong credit is considered a good solution to help get the loan approval. This means, you need to borrow and repay the loans on time. So that, your credit will significantly improve. This also leads you to get a better interest rate along with the few denials going forward.
Increasing income is the second long-term strategies you can consider doing after your loan application is declined. If you want to make a major life changes to reduce your income like quitting a job or starting a new position, you had better pursue them after the lenders approve your loans and you can establish a plan to pay off the debt.
Bring Accounts Current
If you are in a plan of your loans, pay more attention to go with the payments so that you can recover your credit. This doesn’t primarily means that you should pay all the loans back. You need only to contact your creditor to create a payment plan and get a written agreement in order to remove the negative information out of your credit reports.
Well, this is just one of the best solution to take based on your problem discovery on your credit report.
Pay Down The Debt
Was your loan declined? The existing loans can also be one of the reasons why your loan application is declined. Yes, it affects your ability to propose a new loan as the lenders look how much you have debt related to your monthly income.
Therefore, reduce the debt will reduce the debt-to-income ratio and help make you look more capable in finance as a borrower. So pay down your existing debt to free up more of your monthly income to repay the new loan after being approved.
Overall, don’t give up to your loans denial. Take the above actions of what to do if your application is declined to improve your finance conditions before you re-apply for a new loan. Some don’t require much effort like clearing up the negative term on the credit report while others can build a thin credit file that takes time and needs more patience.
Finally, our approaches will lead you to a better loan opportunities so your new loans will be no longer declined.