This consumer would like to be approved for a consolidation loan for his credit cards and personal loans. His credit is bad, but he feels he should be able to find a lender that will approve his loan request. To date he has been turned down by several banks including his own local bank that he deals with. He cannot understand why, even though his credit rating is not in good shape. He requested that we help him understand why he is being declined and if we can assist in finding a lender.
There are six main reasons why consumers are turned down for debt consolidation loans. Once he understands these reasons, he can then do something about it and work on being approved for a loan. In most cases it is not just one area that needs to be focused on. Usually there are several areas that need to be addressed. The following are the top six reasons consumers are turned down for a loan:
Lack of security for debt consolidation loan – many lenders like to have security or collateral to support the loan in case the borrower is unable to repay the loan. For many it means that no security means no loan.
Poor credit scores and credit report troubles – this is a big one. If you have a lot of credit cards, missed payments, owe too much etc your scores will drop and this can be a red flag to many lenders.
Insufficient income to qualify for a debt loan – lenders compare your income level to all of the debt payments that you make including car loans, personal loans, rent or mortgage payments, property taxes and credit card debt. While a consolidation loan usually means that you pay less interest due to lower interest rates, the monthly payments are higher. Higher payments mean you pay off the loan more quickly than you would if you stick with the credit card debt. Anytime you exceed 35% payments compared to gross salary, lenders start getting nervous.
Lack of credit history in country where you live – if you have only been in the country for a short while or have not borrowed money before, you may not have a credit rating at all. Often students fall into this category as well as new immigrants.
Having too much debt – similar to not having enough income to support the debt you owe. If you owe too much already, lenders may not want to consider you for a loan of any type let alone a consolidation loan.
Lack of time on job – You might have the best job going, but if you have only been there for a short time, lenders view this as a possible risk area. They look for stability and earning power.
Depending which of these areas applies to you, there is still something that can be done to help you qualify for a debt consolidation loan. For example, a letter from your employer confirming your employment, especially if you are still being assessed could help. Previous long term employment records along with reasons for leaving might be another. Taking a second job to increase income levels, documenting the issues associated with your credit report and rating can be additional areas to look at. Sometimes a co-signor will also work, however the co-signor must be aware that if you fail to make your payments, they will become responsible for the remaining debt.
Finally, credit counseling, debt negotiation and worst case, bankruptcy solutions can also be considered. Bankruptcy is a last resort and will have profound impacts on your future ability to borrow money.