Already rejected for a personal loan? Here’s what to do next!
Being rejected for a loan when you need one can feel like the worst thing ever! Because sometimes it dampens and delays plans for that debt consolidation you were hoping for or that home renovation project you were dreaming of.
It is important to understand that this is not the end of the world. This does not mean you will never be able to qualify for loans. Use rejection as a starting point and a motivation to restore your credit health and build more creditworthiness into your profile.
Here are the top tips to recover from a loan rejection.
Asking questions is a good place to start
Did you know that lenders are obligated by the Equal Credit Opportunity Act to disclose the exact reason for your loan application getting rejected? If a lender doesn’t volunteer this information, you have 60 days to ask. Two key factors lenders consider on an application are your credit and income. On analyzing, your credit report may throw light on several missed payments or open loans already. Alternatively, your debt-to-income ratio (Read our blog on this here) could be too high. Finding out what went wrong helps prepare you better for the next time.
Paying down debts makes things easier
Your debt-to-income ratio is crucial in enabling lenders at the time of determining your creditworthiness. To calculate yours, divide your monthly debt payments by your monthly income to evaluate your DTI ratio as a percentage. Revisit your budget to come up with places where you can trim expenses and use the extra money to pay off debt. Don’t go taking out a new debt before your next personal loan application.
Raising your income always helps
A higher income lowers your DTI ratio and can go a long way in helping you qualify for a loan. Request a raise from your boss, consider investment instruments or start a side hustle to put a little something extra in your pocket each month. When you reapply, don’t miss out on including all sources of income on the personal loan application and not just the earnings from your full-time job.
Tapping other options is a way to go
If your fund needs are urgent and cannot wait for another loan application and approval process, consider other options like a gold loan or a secured loan against a Fixed Deposit. These are typically more sure-shot ways to get your hands on emergency cash.
What are your options and when they are a good fit
Choose a lender that caters to a borrower with the unique needs you have.
- Online lenders like SmartCoin provide loans to borrowers across the credit spectrum. This is also suitable if you are looking to get a loan but do not want to go through the hassle of visiting a bank branch
- Credit unions are not-for-profit financial organizations that consider your entire financial picture, and may provide cheaper loan options for bad credit. All you have to do is become a member of the credit union before applying
Bank loans can have low rates and discounts for customers with credit reports in good standing. So if you have already been financially disciplined, this is your place to shine.