A time when you need a loan has come – it happens to all of us at some point in life. The reasons are various but the one thing remains the same – you are in fear of being rejected of getting one. If you prepare thoroughly for applying for a loan, there will be far less reasons to be worried.
Being rejected for a loan isn’t something that simply happens. There are always firm and logical reasons behind this, and most of them, fortunately, are those you can do something about.
Before you start working on getting your loan, you first need to understand what the factors that affect whether your request will be rejected are. Once you get a hand of that, you can start preparing for making the request of approval.
The factors affecting the approval
Not every lender takes into consideration all of these factors. In other words, if you get rejected by one lender, it doesn’t automatically mean you will get a rejection for every other lender. It just means the first lender took certain factors into consideration that the next one may not.
1. Credit score and history
In case you have a low credit score and a bad/limited credit history, it can mean to the lender that you are not able to handle your financials effectively, making you a risky candidate for a loan.
2. Employment history
Some lender may pay attention to how often you change jobs. It can also be a bad sign if you have irregular employment, meaning you could run into issues while paying back the loan.
3. Income and monthly expenses
If a lender notices that your expenses are higher than your monthly income, they may be prone to believe you will have problems sticking to your payments regularly. In short, your income needs to be high enough to provide for your monthly expenses plus the payment you owe to the lender. Some lenders may even ask you for a copy of your bank statement to take a more detailed look into how much you earn and spend.
4. Down payments
Many lenders prefer candidates that are capable of making large down payments. This will instantly make the interest lower, as the risk is significantly reduced.
Now that you know the most common reasons why a lender could reject your request for a loan, you need to be aware of all the steps you can make to decrease the chances of being rejected.
1. Check the credit requirements
Before you apply, you better find out what credit rating the lender requires. The best approach is to talk to the lender to be completely informed. That way, you’ll avoid unpleasant surprises.
Be prepared that some lenders take into account if you have already been rejected for a loan by another lender, as it sometimes may hurt your score. This is one more reason why you need to be thorough every time you apply for a loan and make sure you don’t make any mistake.
2. Double-check your details
It is really frustrating to apply for a loan with incorrect or incomplete information that the lender needs. It happens too often that a person gets rejected simply because they failed to provide complete or accurate information. Check if you have filled the loan application completely and if all the information is verified and accurate. Improper documentation can easily be passed onto other banks, which could also ruin your chances of getting the loan elsewhere.
3. Identify the minimum income
Depending on the lender, they will all have different minimum income requirements, which will also differ according to the type of loan you’re aiming at. So, make sure you know what the minimum income is with the lender you want to turn to.
4. Reduce the number of existing loans
If you already have a couple of loans you need to pay back, there are slim chances you’ll get a new one. If that’s the case, then first do your best to pay back some of them or you van consider consolidating them. Once you improve your situation regarding the number of loans, you can try for a new one.
5. Make sure your loan purpose is permitted
Consult the lender about whether the purpose of your loan is allowed. Sometimes it is quite easy to apply for a personal loan as there aren’t a lot of restrictions. On the other hand, a business loan may come with certain limitations that you can’t get passed over.
6. Review your collateral
Every lender has a different condition regarding the collateral, so make sure your plan fits it. If you are unsure of what the collater is, it’s better to check with the lender first before making a formal request.
7. Employment aspect
Make sure you know all the employment requirements of the lender, that is, the amount of regular income you get or whether it needs to be a regular one at all. This is something you should ask the lender directly.
If you are a job hopper, you probably won’t get the loan. The safest way to ensure the loan is to have a steady job and the same employer for at least a year.
Other things to consider
1. Don’t apply at several places simultaneously – every time you apply for a loan, the sender will have to make it visible on your credit file. If a lender notices multiple applications in a short period of time, your credit rating will probably go significantly down.
2. Monitor your credit report – your credit report needs to be up to date, meaning you need to keep track of it. Any information that is outdated or wrong should be removed from the report.
3. Make an effort to keep a straight record – if you have already been repaying old loans, make sure your payments are always on time. It will help your credit score and show the lender you can handle your financials. Also, avoid opening new accounts any time soon.
Requesting a loan isn’t just filling out a request form. In order to really get the approval for a loan, you need to take a lot of steps before you actually apply for one.
In short, it means taking a lot of things into consideration and making sure you have avoided the usual mistakes people do. Only when you go through the lenders requirements in detail and you make sure you have done anything in your power to improve your credit score – only then can you realistically expect that your request for a loan will be approved.