Know why
Look for a letter of rejection. It is mandatory for lenders to provide a notification of “adverse action” detailing the reasons for denial. Seek out any cues or specific justifications provided by the lender.
Identify the main components at play. Was it something else entirely, like your work history, debt-to-income ratio, or credit score?
Don’t hesitate to get in touch with the lender directly if the reason is not obvious. Speak with your lender directly. Important information can be obtained by giving the loan officer a call or sending an email. Request clarification: Give a brief explanation of your situation and politely request more detailed justifications for the rejection. They might be able to offer more accurate information.
>>Considering taking a personal loan? Here’s how to choose the best lender
Look for common explanations for rejection
A common obstacle faced by borrowers is getting approved for personal loans. For instance, a low credit score indicates a greater chance of late payments to lenders.
The percentage of your income that goes toward paying off debts is shown by your debt-to-income ratio. A high percentage suggests that you might find it difficult to repay the loan in full. To guarantee prompt loan repayment, lenders desire that borrowers maintain a steady source of income.
Rejecting an application can happen even for seemingly insignificant mistakes like typos or missing information.
Act now to improve your chances of getting approved for a loan
First, start working to raise your credit score right away. Although it will take time and work, these are some effective strategies. Pay your bills on time first. This is the one factor that has the biggest impact on your credit score. Pay off all credit card and loan balances by the due date, if possible.
Your credit utilisation ratio should not exceed 30% (credit used divided by credit limit). This percentage will increase with balance payments.
Pick a credit card that is secured. A secured credit card can be beneficial if your credit history isn’t too great. Your credit limit is set when you make a deposit, and good credit is built through responsible card use.
Second, to raise your debt-to-income ratio, pay down your entire debt. Make a financial plan. Monitor your earnings and outlays to identify areas where you can cut back. Prioritise paying off credit card debt and other high-interest loans. Consolidating your debts could help with repayment.
Third, think about co-signing options. Having a creditworthy cosigner could greatly strengthen your loan application. But only ask someone you can trust and who is aware of the risks.
Not to mention, take into account lenders like credit unions or online lenders that have looser requirements. Alternative forms of funding, like peer-to-peer lending or personal loans from friends and family, may also be investigated.
>>Personal loans: Everything you need to know before applying for one
Don’t apply right away
Applying for several loans in a short period can lower your credit score. Before reapplying, give yourself some time to update your profile. The lender should specify the reason(s) for the denial in a letter of rejection. Get in touch with the lender if anything is unclear. Among the most frequent reasons for rejection are application errors, a low credit score, a high debt-to-income ratio, and an unpredictable job.
Recall that you don’t have to let a rejection spoil your plans. You will increase your chances of getting a loan approved in the future if you comprehend the reasons and make an effort to improve your financial situation.
Frequently Asked Questions (FAQs)
Q. How can I learn the reason behind the denial of my loan application?
Lenders are required by law to provide a notification of an “adverse action” that includes the reasons for the denial. Kindly take time to carefully read this letter. If you have any questions, get in touch with the lender directly.
Q. After being turned down for a personal loan, when may I apply again?
Spend some time improving your profile before reapplying. Shortly after, submitting several applications can lower your credit score.
Q. What are the personal loan interest rates?
Your credit score, the size, duration, and lender of the loan can all have a significant impact on interest rates. They usually fall between 6% and 36% or more.
Q. How long does it take to get a personal loan application approved?
Depending on the lender, approval times can be anywhere from a few hours to several days.
Q. Do personal loans have any fees attached?
Origination fees, late payment penalties, and prepayment penalties (in case you repay the loan early) might apply.
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Published: 30 May 2024, 01:12 PM IST
