Getting approval for a loan is a long process that looks at many financial and personal areas. Lenders do not give loans out easy. Any number of problems can cause an application to be denied quickly. There are five common reasons why borrowers cannot get a loan. If you have recently been denied a loan, familiarize yourself with why you might have gotten denied so that you can correct the problem.
One of the main reasons loans are denied is because of insufficient income. This could mean the household income is too low to qualify for the loan. It could also mean the income is not considered stable or reliable. People who have been in a job for only a short time are frequently denied loans. The only solution is to increase income or establish a history at an employer. Large lenders like mortgage companies generally want to see you at the same job for at least two years. If your someone who likes to change jobs frequently, try finding one job that you can be happy with for an extended time frame.
Debt to Credit Ratio
Lenders will always look at the debt to credit ratio of a household. The ratio is the percentage of available income or credit that is taken up by debt. High ratios mean a person has very little extra income. Resolving this problem means lowering debts so they take up a smaller percentage of available credit and income. If you have credit cards that are maxed out, you’ll want to start paying down the balances so that creditors see you have available credit. Try starting by paying down the credit card with the highest interest rate and working your way from there.
Many loans today are denied because the borrower has bad credit. This could mean a string of late payments, a previous bankruptcy or errors caused by the credit reporting companies. One solution to this is to hire a credit repair company. You can attempt to remove these negative marks yourself, but a reputable company can generally get it done in less time. You can learn more about the credit repair process at http://www.creditrepair.com. Repair services can potentially improve bad credit that is limiting your ability to get approved for loans.
Previous Loan Activity
Some lenders and banks will use previous loan activity as a reason for denial. This sometimes means a person still has a loan pending. It could also mean an applicant is a co-signer on another loan. Certain banks might even deny a loan because it is too soon after repaying a previous one. Repaying previous loans, going to another bank, or waiting for a few months are the only options. If you have your name down as a co-signer on a friend or family member’s loan, you can also try to have them refinance and get your name removed.
No Cash or Assets
Secured loans or mortgages can be denied if a person does not have enough cash or assets on hand to cover a down payment. Lenders require the borrower to supply assets or cash equal to a certain percentage of the loan. The only way to solve this issue is to build savings over time to meet the requirements.
Lenders are always calculating risk when assessing loan applications. Small things like inconsistent income or a single bad mark on a credit score can be enough to cause lenders to deny an application. The best way to qualify for a loan is to improve personal credit history and increase income. If you have been denied a loan, the best place to start is by asking for the denial reason. This way you can work on getting these issues resolved so you don’t continue to get denied in the future.