The outbreak of the coronavirus pandemic has proven that it is necessary to prepare funds for future needs and emergencies in advance. Whether it’s reviving your business or planning for your child’s education, a loan is a great help in facing eventualities.
Banks and financial institutions reject our loan applications citing reasons such as poor credit rating, insufficient information available from the lender, errors in a loan application, insufficient current eligibility and failure to file required documents.
Refusals in a loan application can be resolved by providing additional information and outlining a lender’s requirements to qualify for a loan. If you are fed up with your loan rejections, the technical issues need to be resolved and you can be a smart borrower.
Here’s how you can still get a loan despite multiple rejection of your application:
If your loan application is rejected, it is important that you understand the main reasons why the loan application was refused in the first place. You can also talk to your lender and get the details within two months and resolve the issues. Follow these tips to be a smart borrower:
-Improve your credit score: Credit score is one of the most important metrics used by all commercial banks, financial institutions, microfinance institutions, and cooperative lenders that decide a borrower’s eligibility for the loan. The credit score includes your repayment history, existing debts, income, credit cards, and your credit utilization rate. A credit score of 750 or higher is considered ideal.
Banks believe that a person with a low credit rating will not be able to repay their debt adequately in the future. Therefore, if your credit score remains low, there is a good chance that your loan application will be rejected. You can improve your credit score by paying your bills on time and setting up monthly reminders for the same.
-Avoid multiple loan requests: Most experts are of the opinion that filing multiple loan applications doesn’t help. If you file multiple loan applications with various lenders, it sends the message that the applicant is desperate. It also creates a bad image of the applicant’s financial situation and may appear misleading. This can be considered financial malpractice and will lower your credit score as well.
-Maintain a stable profile and assess your income: Banks and financial institutions will assess your work, your job profile, your income, and the frequency of a job change each time you apply for a loan. It guarantees that your monthly income is 70% more than the monthly debts and that your loan application must meet the minimum requirements of the lender.
A stable income history also plays a crucial role as it determines whether the borrower will be able to repay the loan in the future in order to maintain a strong financial record. Banks prefer applicants who are stable in their jobs and if you get reviews and promotions let the lender know. If nothing works, you can ask your lender to approve the loan for a lower amount.
-Add a guarantor allows: If your credit rating is low and you are having trouble getting your loan application approved, you may have a guarantor or co-signer. A guarantor or co-applicant with a good credit profile and a stable income can help you opt for a solidarity loan.
In such scenarios, the co-applicant would also be required to pay the loan and this would also reduce the credit risk. A trustworthy co-signer can also help you get a lower interest rate and increase the possibility of loan approval for a higher amount.
-Opt for secured and small loans: You may be successful in getting your loan application approved with low credit scores by applying for a mortgage-backed or secured loan. You can also go for options like gold loan and loan against property and security as the credit score has less impact in such cases. Lenders generally accept these loan applications as collateral for disbursing a secured loan.
You also have the option of applying for a small loan if the lender is reluctant to offer a loan for a larger amount due to a low credit rating. It will also help increase creditworthiness in the process and once the credit rating improves you can apply for a larger loan from other banks and financial institutions.
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