A loan is a big help to many who need financial assistance. It is one of the prominent credit structures available in the market. That is why many people who need extra cash apply for a loan.
Applying for a loan can be straightforward. However, not everyone’s loan application is approved. It’s where the problem starts for some borrowers. There are specific criteria you need to qualify for before you get a loan. If you are one of them who get denied by a lender, here are the things you can do.
Know Why Your Loan Gets Denied
There are many factors that affect your loan application. Here are CreditNinja’s reasons for denying Payday Loans to give you an idea of what you need to do.
- Credit score
- Not enough income
- Change of job
- A recent cash deposit
- The type of loan you are applying
1. Credit Score
Because of the various reasons that may affect your chance of acquiring a loan, you must find out which one truly applies to your situation. The credit score is a crucial factor in loans. Lenders get information about your credit history from your credit score about whether or not you are a good payer.
2. Not Enough Income
How much you are earning can also be the reason why your loan gets denied. Lenders assess your debt-to-income ratio (DTI), and once they establish that your income is low and you cannot pay for the loan you are acquiring, they will not risk lending you money.
3. Change of Job
Having a new job change is a deal-breaker for lenders. But lenders will still dig up your past two years of employment history, plus they will also consider the nature of your new job. If your new job is high-paying, then it will not be a problem at all.
4. Recent Cash Deposit
If the lender notices that you made a cash deposit with a significant amount, they will automatically think that it is borrowed, and you will need to pay it, which can be a conflict if they approve your loan application. So letting them know the source of this money can significantly help them in deciding whether or not to approve your loan.
5. The Type of Loan You’re Applying
The type of loan you are acquiring can also affect your chance of getting approved. It will depend on the other factors mentioned. For example, if your credit score is low and you are applying for an unsecured personal loan, you are likely to be denied.
Fix What Needs to Be Fixed
If you figured out what affected the result of your loan application, the next thing you must do is fix that problem. For instance, if you have a bad credit score, it is best to improve it before applying for another loan.
There are many ways to improve your credit score, and one of these is to settle all your debts. Pay your obligations on time, whether it is a debt or utility bill. Having a credit card can as well help you boost your credit score. Use it and pay it on time as it will reflect on your credit score, impacting it positively.
If you think that your income is the problem, consider finding a second job to compensate for the deficit.
Acquire Another Type of Loan
It would also be best if you acquired a secured loan instead of applying for an unsecured one. With a secured loan, the lender will ask for collateral or a cosigner to serve as security. If you fail to pay your loan, the lender will have the right to seize your collateral.
A cosigner acts as the second borrower, and when the original borrower fails to pay, it is the cosigner’s responsibility to pay for the loan. These two are the lender’s line of defense, making secured loans easy to acquire even for individuals who do not qualify for a loan.
Try Other Lenders
If one lender denied your application, another might approve it. Every lender has different requirements, so it is best to apply with another lender and see how it goes. When you decide to try another lender, it is best to prequalify for a loan first to know the terms and amount you can borrow before you get approved.
Prequalifying for a loan will not impact your credit score as the lender will only perform a soft pull on your credit history. You might as well want to prequalify on an online lender or a local credit union, as these lenders are less strict than the others.
Don’t Lose Hope
Never lose hope if your loan application gets denied. It is not the end of your journey, but in fact, just the beginning. Start improving your credit score, boost your income, and make your finances better. Once you do this, try again, and see how easy it is to acquire a loan.
