We know it feels bad to find out that your loan application got declined. But If you know some of the reasons why most loans get turned down, you can increase your chances of getting approved the next time around.
You see, credit providers need to be careful who they approve for a loan. This is for your own good and also so that they comply with legislation.
Some lenders will tell you the reason for the decline, but not all lenders will offer this information. Here are some common pitfalls if they don’t.
5 Reasons Why Your Loan Application Got Declined
1. It Doesn’t Fit Your Budget
Lenders need to know if you can pay back the loan. Now, they may not be able to predict what will happen in the future, but they can use your financial information to make an educated decision.
Credit providers will look at your income, expenses, and savings. This will help them see how much disposable income you have. If they find that you’ll struggle to pay back the loan, they may decline your application.
Lenders provide money to those that can comfortably pay it back. Again, this is in place to protect you, the consumer. Only unreputable companies will lend to those who can’t afford it. If this is the reason your application was declined, you can try applying for a smaller loan amount.
2. Your Income Isn’t Stable
The average person usually has a monthly, fortnightly, or weekly income from a stable job. This income usually stays the same over a year. As a result, it’s a stable income source. Of course, people can lose this income, but this is meant to be rare. It’s more common for people to stay in the same job for a while.
If you change jobs often, are self-employed, or work on commission, your income may see bigger changes every month. If this is the case, it’s difficult for lenders to see what your average disposable income may be. This instability may be a reason for your loan application falling through.
3. You Have Some Debt
Some loan providers will need to know the amount of debt you’re in. They’ll also take a look at how well you’re paying it off every month. This is to calculate something called the ‘debt-to-income ratio’. If a big part of your income goes to clearing debt, you have a high debt-to-income ratio.
It’s then better to lessen your current debt before getting a loan. You don’t need to pay it all off entirely, though. This is still a better option even if you wanted the loan for debt consolidation. It will prevent your situation from getting any worse.
4. Your Credit History
This is a track record of every time you’ve borrowed money in the past. There are usually two main issues around an applicant’s credit history.
The first is that you may not have any history of credit, to begin with. This means you’ve never used any form of credit before. This can make it difficult for lenders to know how responsible you are with loans or credit cards. So, they won’t know whether you have a good habit of making payments on time.
On the other hand, you may have a less than ideal credit history. It could show that you struggle to make repayments or that you’ve got outstanding bills. If you’ve ever had debt collectors ask for money, this may also reflect on your credit history. It’s best to know the state of your credit history before applying.
5. Your Credit Report Has Some Incorrect Information
People often report mistakes on their credit reports. Most of the mistakes will affect your credit score negatively. Some common errors are incorrect personal information or accounting for certain debts twice. Lenders will check your credit file from various agencies.
But if you face declines based on your credit score, you can actually ask your lender which agency they used. You can ask to see your credit score and if there are any mistakes in it, you can ask the credit agency to fix them. You can then reapply as soon as they’ve corrected all the information.
What Should You Do Next?
If you think of everything above, you may only need to make very small changes to improve your chances of being approved. Although, this is not bulletproof and you may be declined for other reasons specific to the lender’s credit criteria.
If you’re having an emergency, same-day cash loans at Credit24 can provide you with money within hours of your application (on approved application and depending on the time of day and your bank).
The requirements are not hard. Also, every application considers your unique situation.
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Author: Umair Asif