The outbreak of the coronavirus pandemic has proven the need to prepare funds in advance for future needs and emergencies. Whether it’s reviving your business or planning for your child’s education, a loan is a great help in dealing with contingencies.
Banks and financial institutions reject our loan applications citing reasons such as low credit rating, insufficient information available from the lender, errors in a loan application, insufficient current eligibility and failure to produce required documents.
Rejections 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 tired of facing rejections for your loan application, technical issues need to be resolved and you may be a smart borrower.
Here’s how you can still get a loan despite several refusals for 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 rating is one of the most important parameters used by all commercial banks, financial institutions, microfinance institutions and cooperative lenders who decide a borrower’s loan eligibility. Credit score includes your repayment history, existing debts, income, credit cards, and credit utilization rate. A credit score of 750 or higher is considered ideal.
Banks estimate that a person with a low credit score will not be able to adequately repay their debt in the future. Therefore, if your credit rating 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 applications: Most experts are of the opinion that filing multiple loan applications does not help. If you apply for multiple loans from different lenders, it sends the message that the applicant is desperate. It also creates a poor image of the applicant’s financial situation and may appear misleading. This can be considered financial malpractice and will also lower your credit score.
– Maintain a stable profile and assess your income: Banks and financial institutions will assess your work, job profile, income, and job change frequency each time you apply for a loan. It ensures that your monthly income is 70% higher than monthly debts and that your loan application must meet the minimum requirements of the lender.
A stable income history also plays a vital role as it determines whether the borrower will be able to repay the loan in the future to maintain a strong financial balance sheet. Banks prefer candidates with stable employment and if you get ratings and promotions, let the lender know. If nothing works, you can ask your lender to approve the loan for a lower amount.
-The addition of a guarantor allows: If your credit rating is low and you’re having trouble getting your loan application approved, you can have a guarantor or co-signer. A guarantor or co-applicant with a good credit profile and stable income can help you opt for a solidarity loan.
In such scenarios, the co-applicant would also be responsible for repaying the loan and this will also minimize the credit risk. A trusted co-signer can also help you get a lower interest rate and will increase the possibility of loan approval for a higher amount.
-Opt for secured loans and small loans: You can successfully get your loan application approved with low credit scores by applying for a mortgage or secured loan. You can also opt for options like gold loan and loan against property and security as credit score has less impact in such cases. Lenders usually accept these loan applications as collateral to disburse 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 higher amount in the event of a low credit score. This will also help increase creditworthiness in the process and once the credit score improves, you can apply for a larger loan from other banks and financial institutions.
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