If you have ever had a loan application declined, you will agree with me when I say it can be a terrible feeling. It’s even worse when you get declined more than once. Of course, the lender reserves the right to accept your application or decline it depending on the circumstances of the case. While you may not like the feeling, there is almost always a valid reason for your loan to be turned down and it’s up to you to find out why.
Here are some of the reasons why you may not be able to secure a loan:
1. Insufficient income
No one is going to lend you money unless they are satisfied that you will be able to pay it back within the stipulated time. If your debt-to-income ratio is too high, you may struggle to meet your financial obligations including paying off your debts.
2. Poor credit score
This is a very common reason that banks give for denying loan applications. When you have a poor credit score, there is a high probability that you may not be able to pay back the loan because you have an unimpressive repayment history. Some of the ways you can improve your credit score is by ensuring all your bills are paid in time and not applying for another loan for a while.
In some cases, you may be required to provide security in order to get a loan. For example, if you are purchasing a house, then that house can act as security for the loan. This way, the lender is protected in the event that you cannot repay the loan.
4. Lack of credit history
Most financing programs view your credit history to see whether you have a history of repaying your debts. When they don’t have sufficient information to rely on, they may be hesitant to approve your loan.
Although it can be frustrating when your loan is refused, it doesn’t mean that you are doomed. Once you have determined the reasons for the refusal, it is time to move forward. A good first step would be to rectify any issues that you encountered with the first application. You may also approach different lenders to see whether their stance is different from the first lender’s.