If your loan application is denied, you might wonder what to do next. Why were you denied, how long do you need to wait before applying again, and what steps can you take to prevent it from happening again? It’s important to understand exactly what happened because it will probably continue to happen if you don’t act.
Understand the Problem
The first step is to find out why your loan application was not approved. Lenders are generally glad to give you a reason, and they’re required to provide certain disclosures in some cases – so there’s no reason not to find out.
The most common reasons for being denied credit are:
- Problems with your credit
- Not enough income
- Bad (or no) credit – lenders look at your borrowing history, usually in the form of your credit scores, when you apply for a loan. They want to see that you have a solid history of borrowing and repaying loans. However, you might not have borrowed much, or you might have experienced some challenges and defaulted on loans in the past. Either way, it’s harder to borrow without good credit.
The good news is that you can improve your credit!
Here’s a few ways:
A larger down payment might help you get approved. You’ll end up borrowing less, which means your monthly payments will be lower.
Pay off other debts
Your other loans could be part of the problem. Again, lenders look at how much you spend on debt repayment, so reducing that expense will make you look better as a borrower.
If you’re applying for a personal or business loan, collateral might help you get approved (but if you’re applying for a home or auto loan, whatever you’re buying is probably serving as collateral already). Offer to pledge something of value to help secure the loan. Just be aware of the risks: you could lose your home or your vehicle if you fail to make payments.
Long Term Solutions
The following steps will keep your future finances healthy:
Build your credit
Borrowing will be easier in the future if you build a strong credit history. That means you’ll need to borrow (when it makes sense) and repay loans on time. Your credit will gradually improve, and you’ll get better interest rates – and fewer rejections -going forward.
Get caught up
If you’re behind on any of your loans, it’s time to get things cleaned up so that your credit can begin to heal. That doesn’t necessarily mean paying back 100% of what you owe, although that would be the best option.
Pay your debt
Remember that your existing loans affect your ability to get new loans. Paying off old debt will increase the amount of your monthly income that’s available for newer loans.
Earning more is easier said than done, but it’s worth paying attention to your income when you need to borrow money. If you’re looking at any life changes (such as resigning from your job), it’s best to save those for after you’ve been approved for you loan – and only when you’ve got a plan for paying off the debt.
Remember: if you need assistance in getting on track with your finances or if you find it difficult to meet your payments, contact us and we’ll be happy to help!