Getting turned down for a loan can be a huge disappointment, especially when your big plans for the money are a no-go.
Although the whole experience of applying and then getting rejected for a loan may be unpleasant, it doesn’t mean your situation is hopeless.
Find Out and Understand Why You’ve Been Denied
If you’re turned down for a loan, the best way to make the most out of your misfortune is to learn all you can from the rejection. When applying for a loan such as a mortgage, you’ll typically receive a letter with an explanation of your rejection. There are a variety of reasons for why you’ve been turned down, so it’s important to find out as much as you can about your personal case.
Your credit score likely factored into your loan application being turned down. With the recent home mortgage crisis, lenders have tightened up their lending guidelines, which translates to more restrictions on getting loans. Many of those with scores that qualified for a mortgage just a few years ago are no longer eligible.
Your credit history is important part of the decision, too. Your credit report will give more details about your history and better information about why your credit score is what it is.
But even if your credit is very good, unfortunately that’s not the only reason for rejection. Some other possibilities include:
- Existing debt. Having too much debt already on the books is likely to cause problems with getting a loan. Having several loans that require payments restricts your ability to pay back another loan on top of those.
- Insufficient income. It’s possible that you have an excellent credit score, but you just don’t make enough money to afford the loan you’ve applied for. Your debt-to-income ratio is something your lender will examine before giving you the green light.
- Job history. Even if you have a decent salary, your job history can definitely impact your lender’s decision. If you’ve changed jobs often in the past few years or your employment otherwise seems unstable, this is a red flag for many lenders. The way they see it: if you quit again or lose your job, you’ll also lose your income and ability to pay them back.
Work on Improving Your Deficiencies
Once you find out why you’ve been turned down, it’s time to get to work on improving the areas where your loan eligibility is lacking. All of these problems are solvable, although some fixes come quicker than others.
In terms of your credit score, it’s best to examine your score closely and have your credit report alongside to determine what factors have lowered your score in the past or are keeping it down now. Have you made late payments or gone to collections in the past? If you haven’t already been working on improving these important factors, you need to make them a priority. Any of these problems can cripple your credit history and ability to get a loan.
If you’re carrying too much debt, make sure to work on paying it off. Paying off debt is never easy, but when getting approved for a loan hinges on your debt status, it’s a better time than ever to get serious about paying down outstanding loans.
If your loan approval comes down to your job and your income, it’s on you to improve this area to your lender’s satisfaction. This could include anything from searching for a job that pays a higher salary than your current one, or being sure to hold down a stable job for a few years before going back to apply for a loan. While this isn’t always easy news to hear, it’s often your best bet for meeting lenders’ demands.
You may be turned down for a loan because your ask is larger than your bank is comfortable with granting you.
While being rejected may sound like bad news, it’s much better to find out by getting turned down initially than being unable to pay and end up defaulting on the loan later.
If you’re attempting to reach too high with the loan you’re applying for, one option is to scale back on what you’re asking. Perhaps considering a more affordable house or a less expensive car than you were hoping to finance will mean the difference in getting approved.
Take Your Business Elsewhere
If you’ve examined your application and subsequent rejection but still believe you’re a solid candidate for the loan you’ve applied for, consider taking your business to another bank. Banks often have different lending policies, so getting rejected by one lender doesn’t mean you’ll reach the same outcome at others.
It may even be helpful to explain upfront why you were rejected previously to find out whether or not your new bank will be able to approve your loan or if you’ll simply run into the same problems. Perhaps the second bank will offer better terms for your loan that allow for payments you can afford based on your income.
No matter what happens when you’re turned down, don’t get discouraged and do nothing. Take action to find a solution that will allow you to fund your dreams.