Why Your Personal Loan Application was Rejected? What to Do Next?
There may be a number of reason why your loan application was rejected. Finding out and understanding the reason for rejection will help you better prepare for the next time you apply.
Reasons for Personal Loan Rejection
According to the Equal Credit Opportunity Act, it is mandatory for all lenders to provide you a reason (in writing) as to why your loan was rejected. One of the possible reasons why you were denied the loan could be due to any error in your credit report. Incorrect information could include late payments, closed accounts showing as open accounts, inaccurate payment reports, and so on. The lender will provide you the name and address of the credit bureaus that supplied your credit report. Another reason for rejection could do with your credit file itself, you may not have enough credit, that is, if you do not have any credit cards or if you have not taken any loan, then there is nothing for the lender to check whether you will be making the payments diligently.
A lender can reject your loan application if you have too much debt. Most lenders will check your debt-to-income ratio. If the lender is convinced that you will not be able to make the payments on your existing salary because a good percentage of your salary goes to other debt payments, the lender will straightaway reject your loan application. Note that your credit report matters no matter what type of loan you are opting for, be it a mortgage or a short term loan. Now, applying for a larger loan amount could also be the reason for rejection. For instance, if the loan amount you applied for is larger than the appraised property value, the loan could be denied.
What you can do once your loan application is rejected
If there is an error in your credit report, then fix it immediately. If that is the sole reason why your loan application was rejected, then re-apply for the loan after fixing the credit report. If the loan was rejected because of a larger loan amount (in the case of a mortgage), then try to renegotiate the purchase price with the seller. If you can lower the purchase price, you can lower the loan amount. You can also talk with the lender, and lower the loan amount as well. If the loan was rejected because you already have many debts, try to close most of them as soon as possible. If you can get an ideal debt-to-income ratio, you can then re-apply for the loan. Likewise, if you have a bad credit score, then try to improve your credit score, and then apply for the loan again.
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It is important that you understand why your loan was rejected, correct the issues that lead to the loan rejection, and then re-apply. Keep in mind that the number of loan rejections go in your credit report and it can affect your credit score.