Loans are commonly used for expenses like car purchases, home improvements, medical bills, and weddings. They can also be used to consolidate debt or pay off credit card bills at a lower interest rate. Loans with reasonable interest rates can provide a means to purchase an item and pay for it over time.
But what happens if you’re denied for that car loan, or a bank loan that was to help with an unexpected expense? Review the following steps which may help provide a solution.
Figure out why you were denied
A loan application could be denied for a number of reasons. It’s important to understand the bank’s reason for not approving your application. It’s possible that your income doesn’t meet the required amount or your employment history is inconsistent.
Loan applications may also be denied due to incorrect information on the application itself, or errors on the applicant’s credit report. You should verify that your identifying information like social security number and birth date are correct on the application. Check your credit report to make sure all information is accurate and dispute anything that is incorrect.
Banks also look at your debt to income ratio when you apply for a loan. If you already have significant debt, it will be more difficult to secure a loan. Your overall credit is also an important factor. If you have a history of late payments or negative listings on your credit report, the bank may deny your application.
2. Submit an application with a different bank
If one bank denies your application, you can try applying with another. It’s generally best to apply with your own bank before trying a different one, but banks have different criteria and guidelines for loan approval. You may be able to secure a loan with another institution.
3. Consider getting a guarantor or co-signer
If you’re not able to secure a loan on your own, whether due to poor credit or insufficient income, a co-signer might be a good option. When a guarantor signs onto a loan, he or she agrees to take on financial responsibility if the borrower is unable to make payments. This helps the bank ensure that the loan will be paid back.
4. Pay down debt
If your debt to income ratio is the issue, take some time to create some attainable goals to pay down your debt. Banks typically want your debt to income ratio below 35% to approve another loan.
5. Review your budget and credit profile
Sometimes a loan denial is a sign that you need to reassess your finances and make some changes. Each time you apply for a loan, the lender performs a hard inquiry to pull your credit information. Hard inquiries can temporarily hurt your credit. Take a break from loan applications for now and work on improving your credit, paying down debt, and tracking your expenses.
6. Seek legal advice
Flitter Milz is a consumer protection law firm representing people with credit reporting errors, wrongful car repossessions, contact from debt collectors and unwanted “robo” calls. Whether payments were missed, or a debt is owed or not, the consumer has rights against the credit bureaus, lenders or collectors. Contact us for a free consult to determine whether your consumer rights were violated.