After applying for a home or car loan, many people began searching for that perfect house or the ideal car. However, if their loan application is rejected, it can be disheartening. A prudent approach is to take the opportunity and review finances then rather than be sad about the rejection. Typically, a loan is rejected based on poor credit or a high debt-to-income ratio. Fortunately, both these factors can be addressed and improved so a second loan application can be submitted.
Step 1: Analyzing the Situation
The first step is to analyze the situation and thoroughly look at the rejection letter. It will help you understand why your application was rejected, which can be poor credit or not having credit at all. Lenders look for a solid credit card history and are one of the basic elements for loan application acceptance. Consistent payment history notifies a lender that you will be willing and able to repay this loan as well. Another reason for loan application rejection is insufficient income. Lenders calculate the ability of a borrower to repay before they accept the application. If a borrower has a high debt-to-income ratio, the application will most likely be rejected.
Step 2: Address the Cause for Rejection
After analyzing the situation, address the cause of the rejection. Fortunately, there are various ways to resolve the reasons for rejection, but there are no instant solutions. Resolving the reasons for rejection will take time, but a rejected applicant will eventually be able to reapply. The initial step is to look for errors in the credit card report. Also, lenders sometimes look at the amount a borrower spends on repayment of other loans every month, so an ideal approach is to reduce the expense.
If the applicant does not have time to resolve the issue, some strategies an immediate approval include:
- Larger Down Payment: A larger down payment can be beneficial for a house or car loan. It increases the chances of a loan being approved because a larger down payment means that a borrower would require a smaller loan and have lower monthly payments. It may help the lender overlook imperfect credit card history.
- Use Collateral: Collateral guarantees repaying the loan fully as the borrower pledges to offer something of value in return for the loan. Collateral is typically an option when business loans are required. Borrowers can either offer their car or their home if the requested loan amount is large. However, failing to repay a loan may result in foreclosure or car repossession. Collateral should only be used if the loan is for something significant.
- Get a Cosigner: Having a cosigner means that if an individual fails to repay the loan, the cosigner will be responsible for it. In matters where a borrower’s income is insufficient, this strategy may be used. It is advised to use a cosigner who is willing to take risks.
- Look for Other Lenders: People who cannot wait may look for other lenders. Applying somewhere else after one lender rejects a loan application requires no waiting.
Other than these immediate strategies, borrowers can take some time to evaluate their credit and income. Some long-term strategies can make reapplying easier, as the risks of rejection are eliminated.
- Build Credit: Strong credit history makes borrowing easier and reduces the chance of application rejection. A person needs to borrow and repay loans on time to help improve credit and provide a better chance of future loan approvals.
- Increase Income: Another solution is to look for better income options. A good income increases the chances of loan application acceptance.
Following this guide will provide clear direction to individuals who do not know their next step after loan application rejection.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.