If you want to avoid being rejected on your next loan application, follow the advice given in this guide to applying for loans.
The period of time between applying for a loan and waiting to hear back about whether you have been approved or not can be incredibly anxiety-inducing, particularly if it’s the first loan application you’ve filled out or if you’ve been rejected for a loan on a previous occasion.
Being rejected for a loan in the past doesn’t necessarily mean you’ll be rejected for future loans, however, and by following the right advice, you can fix some of the easiest and most common mistakes that are made when applying for a loan that can lead to their rejection.
That’s why we’ve put together this guide to applying for loans where we’ve compiled some of the most useful tips to help ensure your loan application’s success! And if you’re looking for more information on different types of loans, including direct loans, head to creditninja.com.
- Look Back At Your Financial History
Before applying for a loan, review your current finances as well as your credit history to try and get an idea of whether you really need a loan and whether you’re likely to be accepted.
If there are alternatives available to you, such as borrowing money from a trusted friend or family member, NerdWallet advises that you turn to these before trying to take out a loan.
- Work On Improving Your Credit Score
One of the key factors that determine whether or not you will be accepted for a loan is your credit score.
This gives potential lenders an idea of how reliable you are and how likely you will be to meet your payment obligations in a timely manner, as well as determining the interest rates offered to you upon successfully securing a loan.
The higher your credit score, the more likely you will be to have your loan application accepted and you’ll receive the best offers with lower interest rates due to your high score.
If you can afford to wait, it might be worth waiting for your credit score to improve, which you can actively help by learning how to manage your personal finances.
This will increase your chances of being accepted and by waiting even just a few months you can reduce the interest rates, making the total you have to pay back lower overall.
- Compare Different Loans
Every loan comes with different rates, terms, and conditions, and there are some out there that you have a far higher chance of being accepted for than others. But at what cost?
First, establish what type of loan you’re looking to take out. Then think about the interest rates and whether you can afford to pay them back on top of your initial loan. This is the best way to choose the right loan for you and to increase your chances of being accepted.
- Proof Read Your Application
Mistakes and discrepancies on your loan application can hold up or potentially ruin what could have been a successful application, so it’s important to check over all of the information you have given to make sure that it is correct.
This includes details regarding your date of birth, social security number, and residency status. Giving false information or purposely lying on your loan application could result in you being blacklisted by the main loan providers, leaving you with only less reputable options.
- Don’t Apply For Them All At Once
If you didn’t already know, applying for several loans or different types of credit in a short space of time will trigger multiple “hard inquiries” which are requests for your full credit report, and having too many hard inquiries will negatively affect your credit score.
This is because lenders will see it as a desperate attempt to obtain credit and take this to mean that you are struggling financially, which makes you look like a less reliable prospect.
Possible Causes For Rejected Loan Applications
If you’ve tried applying for loans in the past but you haven’t had them accepted, there could be a number of reasons as to why you aren’t coming across as an attractive applicant.
Some of the main causes for rejected loan applications include, but are not limited to:
- Limited credit history: When you have a short or ‘thin’ credit file there is less information for potential lenders to base their decision on which can be one of the most common reasons why loan applications are denied. Try to build up credit history through lending responsibly and never missing or being late with a payment.
- Too much credit: On the other hand, having too many different open lines of credit can be detrimental to your loan application prospects as lenders may worry that with the amount of credit you already have, you may struggle to pay it back in the future.
- Employment status: Having an employment history that is filled with evidence of your job-hopping over the years can turn off potential lenders as they may be concerned about your ability to repay the loan if you can’t hold down a steady job for a consistent period of time. However, different lenders have their own risk factors.
- Applying for the wrong loan: If you haven’t done your research beforehand, you may end up applying for a loan that is not actually suitable for your financial needs which can lead to the rejection of your application. For example, if the repayment terms seem unrealistic when looked at in comparison to your monthly salary.
We hope that you’ve found our guide to applying for loans helpful and that you’ll feel more confident the next time you’re filling out a loan application.
At the very least, we hope we’ve given you an insight into why your previous applications may have been rejected. Now, you can work on improving your credit or whatever it is you need to do to ensure your success.