Top 3 Causes of Loan Application Rejection
Has your finance application been denied? Do you find yourself to be a victim of disapproval? If so, you should look into the following causes, which happen to be the most possible reasons for loan denial:
I. High debt to income ratio
Debt to income ratio reveals the percentage of your pre-tax income that goes into repaying your debts. Most lenders would like their borrowers to devote not more than 38% towards their debt repayment.
A lender may still be flexible and allow up to 45% only if there are other supporting factors like good house equity, capacity to save more, and a high credit score.
Hence, you should check what your debt to income ratio is. If you discover, you are spending more than 38% for repaying your loans, you should look for ways to reduce it as much as you can.
II. Low credit score
A bad credit score is a red flag for any lender. Currently, an individual with less than 620 FICO score is considered a bad borrower. It is a clear signal to the lender that chances are high that the borrower will not be able to pay back on time.
In the same way, a poor credit report is also a great deterrent. If you have missed payments, defaults, foreclosure, etc. mentioned in it, you could be inviting a rejection.
Get hold of your credit report and learn where you stand. You could visit a credit report generation website managed by the federal government and have your report from Transition, Equifax, and Experian. Mostly, the report can be generated for free.
III. Not enough collateral
When you choose a secured loan, you need to pledge property as collateral. The property could be your vehicle or house. In both cases, the lender will look into your share in the property.
If you own your vehicle/house completely and decide to pledge it, the lender should accept your application. However, if you have not paid off a major portion of your loan then the lender may ask you to lower the loan amount or demand a higher interest. Apply Now Today!
