When you apply for a loan and get turned down, it’s somewhat hard not to take it personally, right? However, if your loan application was turned down, you should dig into why. When you know what went wrong, you can do something about it and increase your chances of success next time.
You should be aware that a low credit score, high debt-to-income (DTI) ratio, and lack of income are typical causes for not getting the money you need. If you’re in need of a loan but continually getting turned down for one, continue reading for a discussion of seven probable reasons why this keeps happening to you.
The good news is that you don’t have to speculate as to why you might be denied a personal loan. A lender that rejects your loan application must provide a written explanation within 30 days. You can also contact the lender and find out more about your situation. Follow the link for more https://www.wsj.com/podcasts/the-journal/one-small-business-is-booming-so-why-cant-it-get-a-loan/da8c6d26-6928-44e3-97c3-de970ae4f3c8.
Here are some reasons you can be denied a loan:
Poor credit score
Your FICO credit score, among other things like your salary, will be taken into account by lenders when reviewing your application for a personal loan. Lenders can get an idea of how well you handle money based on your credit score. Your payment history and total debt load are two of the biggest contributors to your credit score.
Oh, and you should also know that there are frequently more stringent lending standards for unsecured personal loans (loans without collateral).
The minimal credit score demanded by some loan companies is sometimes listed publicly. You may have trouble getting approved for a loan from a certain lender if you don’t meet their minimum requirements. If your credit score is low, but you still want a loan, know that the interest rate will be greater to account for the lender’s concern that they will not be repaid.
High DTI ratio
Too high of a DTI ratio may also be a cause for concern. This ratio evaluates how much of your monthly gross income goes toward paying down your monthly debt. If you have $5,000 in monthly income and your monthly loan payments are $3,000, your DTI ratio is 60%. Such a high ratio may alert creditors to the possibility that you will have difficulty meeting your financial obligations.
DTI ratios below 35% are typically seen as optimal, so that’s what you should shoot for. By doing so, you’d boost your eligibility for a loan.
You’re asking to borrow too much
We also want you to know that you får ikke lån if you try to borrow more money than you have the means to pay back in whole and on time.
This is due to the fact that your income and current debt responsibilities will determine the maximum loan amount that a lender is willing to give you. After looking over your financial information, the lender may decide that you don’t meet the requirements to borrow a particular amount.
Consider the following scenario: you want to obtain a personal loan for $100,000 despite the fact that you’re aware that your monthly income is insufficient to cover the cost of the loan repayment. Because you are asking for a sum that’s completely unreasonable, the lending institution will almost surely say no.
Insufficient source of income
Lenders will look at your income in addition to your credit score and your debt-to-income ratio when determining whether or not you’ll be able to repay the loan.
To put it simply, they want to make sure that you won’t fall behind on your payments and that you won’t be unable to pay the money you owe. Your application can be denied by the lender if they determine that your monthly income is insufficient to cover the amount of money you want to borrow, or if your income seems to fluctuate from month to month.
Application mistakes
The lender will notice if your application has any typos or other types of mistakes, and as a result, your request for a loan may be immediately declined. Yikes!
But, why is this important? Well, lenders have a bunch of applications to go through, so spending time on one that’s either missing important information or is full of errors isn’t going to be worth it to them. You can really blame them, right?
Oh, and do you know what else? It’s not a good idea to embellish any part of your application, including your salary, as this can lead to complications. You’re required to provide proof for each and every income source that you list on the application, as well as for each and every financial commitment that you have. During the underwriting process, anything you fail to mention or overstate will come back to haunt you in some way.
Way too high risk
In order to get approved for a secured loan, you need to have collateral. What does this mean?
This means that if you acquire a secured loan against the title of your car and you don’t pay it back, the lender has the right to take your car back.
If you have a home loan, the lender can foreclose on the property itself if you’re unable to make your payments; however, the lender runs the danger of suffering significant losses if they’re forced to sell the house at auction.
If you make a sizable down payment, you reduce the risk for the lender since they will be able to recoup some of their investment even if they have to sell your property at a price that is lower than the current market value.
Lenders will also want to verify that you will still have some money left over after making the down payment. Lenders are aware of the fact that factors such as taxes, moving bills, and home maintenance can put a significant dent in a person’s savings.
They want to make sure that you won’t have any trouble paying your payments right away and that you have enough money on hand to get you through the first few months of becoming a homeowner. You can find out more helpful info here.
Not meeting the lender’s criteria
A personal loan can be used for practically anything, but there are a few caveats. You shouldn’t get a personal loan to pay for school, for instance. It’s also possible that the lender has a policy that prohibits you from gambling with the money or investing it in any way. Your loan application could be rejected if you specified a use for the funds that’s forbidden by the lending institution.