Options when your loan gets denied

Common reasons for loan denial

Certainly one of the most disappointing things that you can have happen is to be denied for a loan. There are many emotions that lead up to asking for a loan. Perhaps you are applying for a loan in order to buy your first car, go to school or even buy your first house. In cases such as these being denied can be truly devastating. Fortunately, there are options for when your loan gets denied. But first, here are some common reasons for denial. Knowing these common reasons for denial may help you to better prepare yourself so that you can hopefully avoid being denied in the first place or be more prepared for the next time that you apply for a loan.

• Insufficient funds - When you are looking into buying your first home, you need to consider how much money you actually have in the bank. If you don't have enough money to cover the down payment and closing costs you could jeopardize your chances of getting the loan or at least getting the loan in the time period that you would like.
• Insufficient income - Lenders need to know that you will be able to repay the money that you owe. If you cannot prove that you make enough money to make prompt re-payment a reality, they are not going to lend you money. If your income is lack luster, consider asking for significantly less money from your loan. After all, some credit may be better than no credit.
• Too much debt - Lenders approve loans based on a debt-to-income ratio. Your debt can keep you from qualifying for a loan simply because new lenders can see that you already have obligations to pay someone else back, and do not want to run the risk that they will have their money handled irresponsibly. If you haven't been able to re-pay your current loan, who's to say you won't be able to re-pay the one you are requesting now?
• Poor credit - There are many people who are denied for a loan because of poor credit. A credit report is a report that lenders you have had contribute information to. Future lenders look at this report to determine how you have handled your debts in the past along with other factors that impact your perceived worthiness to obtain credit. In some cases you may have decent credit that is made to look poor because of an error. In this case you can correct the error and dispute the denial with the lender, indicating to them that there were errors on the report. Unfortunately negative marks on your credit that are not errors can only be removed through proving your credit worthiness over time.

A popular option for loan denial: get a co-signer

Many people who have not yet developed a credit history or who have a less than perfect credit history rely on a co-signer to help them to get a loan. A co-signer is "a person who signs his or her name to a loan agreement, lease or credit application. If the primary debtor does not pay, the cosigner is fully responsible for the loan or debt." Many young people use a parent or other guardian as a co-signer on their first car, apartment or student loan contract. By having a co-signer you are lowering the risk that the lender is taking in you. Not only are you giving the lender a second option for the collection of the money that they lend, but you are using the good name of that second option co-signer to help you to get a better rate so ultimately you end up spending less on interest. For as wonderful as a co-signer is, not just anyone is going to be willing to co-sign with you. You have to realize that they are assuming the risk of your inability to pay. This is why many co-signers are family members or close friends who know you well enough to be confident that they will not regret taking you under their wing of good credit.

Personal loan denial due to bad credit

However ironic it is, once you have started down a path of poor money management it will become more and more difficult for you to escape that downward spiral. Even though you may have a desire to pay off your loans, no one will be willing to approve you for a personal loan to help get your credit back on track and if they do approve you, it will most likely be at an interest rate that will be difficult to pay. Personal loans can be acquired if you have bad credit but realize that it is at a cost and that you should seriously consider all of the implications of a higher interest loan and be sure to plan carefully before accepting the terms.

Bad credit personal loans usually take the form of either a secured personal loan or an unsecured personal loan. Secured personal loans have the advantage of coming with a lower interest rate but the disadvantage of having to put up a certain amount of assets as collateral to obtain that lower interest rate. Unsecured loans are more commonly the option for those in debt because they require no collateral of material possession and therefore do not allow the lender to come after you to collect your assets if you fail to repay the loan. The cost of such a risk free deal is a higher interest rate and more stringent terms. Unsecured bad credit loans are also relatively short term, meaning that the payments will generally be higher because they will be dispersed over a shorter period of time. Unsecured bad credit loans are definitely a viable option for those who have been denied for a loan due to their poor credit.

Getting denied for a business loan

Business loans can be very difficult to be approved for especially if you have bad credit. Only a select group of businesses will qualify for the more substantial loans even though there has been a drop in federal interest rates. Lenders do not want to find themselves in a situation where they provided financing to a business that fails and there is no way to get their money back. Below are a few tips for avoiding denial for a business loan the next time that you apply:

• Separate your business's credit from your own personal credit.
• Offer collateral as a security against the loan.
• Get a co-signer.
• Request a more modest amount of money.
• Try to qualify for a bad credit personal or business loan as a step towards rebuilding your credit.

Payday loans

One of the most popular options right now for those who have their loan denied is to get a payday loan.  Although payday loans may provide a solution for those in a temporary bind, they are often used for more long term financial distress and this dependency on borrowed money from payday loan companies can be very destructive.  Receiving a guaranteed approval for an instant loan is very appealing indeed, but all too often the borrower neglects to read the fine print of the contract.  Payday loans typically charge an interest rate of $10 to $30 on every $100 that is borrowed.  When translated into an annual percentage rate, you could end up paying upwards of 300% in interest.  What makes this situation worse is that extensions to these payday loans are often granted.  This adds on a fee in addition to prolonging the responsibility of interest payment.  Irresponsible payday loan borrowers find themselves in serious debt relatively quickly.

Check for errors

There will be times when you may be denied for a loan because of an error of some kind.  Much of the financial information that lenders depend on in order to determine your eligibility for a loan is generated and organized by computer.  As we all know, computers are not perfect and the humans that enter those numbers into the computer are also prone to make a mistake every now and then.  This is why it is extremely important to review all of the information that you are submitting to lenders and that you may receive from lenders to ensure that everything is correct.  Lenders are required under the fair credit act to disclose the reasoning behind your denial for a loan.  Looking over this denial notice can not only help you to ensure that you were denied for the correct reasons, but it can also help you to see which areas of your finances you can work to improve to be better qualified for the next time that you apply for a loan.

Errors on your credit report can be fixed with the submission of an official letter of appeal indicating what the error is and providing proof to back up your request for correction.  Obviously, you would like to be able to have negative marks removed from your credit report but this can only be done in a short period of time if those marks are in error.  There may also be errors in the underwriting process.  Underwriters are not perfect and may enter information on your application that is incorrect.