7 Reasons Bank Refuse to Loan You Money and 6 Ways to Remedy the Situation

Refused! Have you heard these words repeated to you when you attempt to get a bank loan? Why do banks reject your request? What can you do to remedy the situation?

7 REASONS YOU’VE BEEN REFUSED | There are plenty of reasons for which a financial institution might deny your request for a loan, whether it’s a personal loan, a car loan, mortgage or otherwise. Can you relate to the following situations?

• Your Debt Is Too High | If the percentage of your debt is too high, your request for a loan may be denied. Generally, financial institutions will allow up to a debt rate of 40% of your annual revenue. In the case of a mortgage request, the total amount for a mortgage and basic necessities (loan, insurance and taxes) cannot surpass 32% of your annual revenue. Your total debt rate, including mortgage and cards, cannot exceed 40 – 42% of your net income. Use this debt calculator tool to find your total debt rate.
• Your Salary Is Too Low | Banks will verify your ability to repay a loan. If your salary isn’t enough to cover necessities as well as debt, they will not approve your application.
• You’ve Changed Careers | A change in employment can prevent you from qualifying for a loan. Financial lenders are looking for someone who is financially stable. For example, in the case of a mortgage, it’s preferable that you have had the same employer for at least the past two years.
• You Owe Money to Debt Collectors | If your present situation includes owing money to debt collectors, you will automatically be refused. Lenders only lend money if they know the borrower will repay it. Since debt collectors are placed in action for debts that haven’t been repaid according to the terms in place, you will not qualify to take out any more loans for the time being.
• You Have A Poor Credit Score | In Canada, your credit score can vary between 300 and 900. In general, a healthy credit rating fall at 650+. Traditional banking institutions may require a minimum credit rating of 680 for a mortgage request. If your credit rating is less than 600, you will most likely be denied a loan.
• You Don’t Have A Sufficient Down Payment | In the case of mortgages, a down payment of at least 5% of the total buying cost is required. If you don’t have this down payment, you will not be approved for the loan.
• Your Home Is Valued Too Low | If you are applying for a mortgage, the bank will request an evaluation of the home’s market value. If the market value of the house is worth less than the selling price, your loan will be denied unless you have the funds to cover the difference.

6 SOLUTIONS FOR GETTING APPROVED | There are a variety of solutions to help you get a loan, even after having been denied one.

• Lower Your Debt | Lowering your debt will lower your debt rate. Try the following steps.
  • Make a budget, listing all of your income and expenses over a period of two months.
  • Find ways to save money or cut expenses.
  • With the money you save, make additional payments to the debt with the highest interest rate. Make sure to continue paying the minimum owed on your other debts.
  • Once your highest interest rate debt is paid, continue in the same vein until you no longer have any debt or at least a debt rate that is low enough to be approved for a loan

• Increase Your Credit Score | There are several ways of increasing your credit score.
  • Pay your bills on time.
  • Never use more than 35% of your available credit.
  • Avoid asking for additional credit unless absolutely necessary.

You can consult your credit score for free via Equifax and TransUnion. It’s important to regularly consult your account to ensure it is both accurate and up to date.

• Have Someone Co-Sign | If you are sure that you can repay your debt, ask someone close to you to co-sign your application. It’s important to remember that any late payments will negatively affect your co-signer’s credit as well as yours. Your cosigner will be held responsible if you do not pay back the loan, and you will most likely lose your good standing with that friend. It’s crucial if you choose to have a co-signer, that you are 100% sure you will pay your loan back without delay.
• Online Loans | If you have been refused by the bank for a personal loan, you can still apply for an online loan. Online lenders, like Credito, are less strict in their criteria than traditional banks, and they don’t affect your credit score. If you have had a stable job for at least one month and earn at least $1200 or more a month, you are eligible for an online loan. Online lenders focus on your current ability to pay back your loan, as opposed to your past history and whatever unfortunate challenges you may have had to face.
• Use A Mortgage Broker | If you have had trouble getting a mortgage, you can try passing through a mortgage broker. Brokers have reliable contacts with multiple financial institutions and know which ones are more likely to be lenient in approving a loan to someone with your financial situation. They can also vouch for you and make a case for why you are a good candidate. In the case of a refusal, they can also provide you with the reasons why you were refused and tips on remedying the situation.
• Apply for A Guaranteed Loan | You can see what options your financial institution offers regarding leveraging your assets for a guaranteed loan.

BE PROACTIVE AND BUILD UP YOUR FINANCIAL FUTURE

The best way to assure approval for a loan when you need it is to prepare now.

Make sure you have a good credit score and acquire the least amount of debt possible. Correcting a misguided past now will help you build a stable financial future and allow you to rest assured that a loan will be granted if you need one.