Getting out of debt is a long and complex process. Before you consider applying for a consolidation loan, start with a debt repayment strategy. There are many popular ways to repay Perth debt consolidationbut we recommend to compare snowball against avalanche strategies because they are designed to use your natural motivations to stop the cycle of debt as quickly as possible and will not cause your credit score to drop like a consolidation loan would.
You may have exhausted those options and applied for a loan to streamline your repayment process. Unfortunately, although debt consolidation loans are a popular product for many lenders, they are not always easy to obtain. If you’ve been turned down, you’re probably wondering what went wrong and how you can improve your chances next time.
Here are the top four reasons why you might be denied a debt consolidation loan.
You have a bad credit rating or an insufficient credit history
Debt consolidation companies will want to see a history of good credit practices on your credit file before approving you for a loan. It may seem unfair since you are looking for a loan to recover from past mistakes, but lenders need to know that whatever they lend you will be repaid.
If you have any late payments on your credit report, see if there’s a way to get them removed. Most late payment marks will go away within a few years, so if you can wait to apply, you may have a better chance of getting approved for a debt consolidation loan.
You may also be turned down for a debt consolidation loan if you don’t have a great credit history because lenders can’t get a long enough payment history to make sure you’re not a risk. Also, if you’re new to credit and already in enough trouble to need debt consolidation, this could be a big red flag that can lead to denial.
You didn’t have enough collateral
Debt consolidation lenders will often require some type of collateral to secure the loan if you stop making payments. The amount and type of collateral required varies for each financial institution, so it is important to ask what collateral you will need to offer before submitting your request. If you have already been turned down, contact your potential lender to ask if there is a way to provide something else as collateral of higher value in exchange for the loan. You may need to temporarily surrender your car title or add a second position on your home title to be approved. These are substantial assets that you need to give up control of, so take the time to weigh the potential consequences (i.e. what you could lose) if you were unable to repay your loan.
Your income was not high enough to justify the risk
If you are heavily in debt and not earning enough to make ends meet, you could be rejected. Your lender will take into account the amount you’re asking for and the current interest rates you’re receiving and compare them to the amount of money you’re bringing in with each paycheck. If the numbers are too far off, they might see that you can’t make your loan payments. If so, try to get records of other income from side jobs, gig work, alimony, or alimonyfor example.
If you don’t have additional sources of income, start taking steps to increase your income. You can either ask your current employer for a raise or start a side hustle online. Not only will increasing your income give you better financial results the next time you apply for debt consolidation, but you may even earn enough money that you won’t need debt consolidation at all.
You asked for too many loans or credit cards
If your credit history shows a recent influx of credit card debt consolidation program or loan applications, you may be denied. It may seem counter-intuitive since you’re trying multiple ways to get rid of your debt, but lenders don’t see it that way. Instead, several recent applications show that not only are you in dire straits, but no other lenders seem to think it’s a good idea to let you borrow from them.
To prevent this from happening, work with lenders you already have relationships with, as they might be more willing to add another line of credit or loan to your accounts. If they don’t seem interested you can go through payday or hard money lenders as they don’t pull your credit report but keep in mind there is a compromise not to use your credit history. Payday lenders aren’t regulated by any governing body, so they don’t have any rules about what they can charge on a loan. Their interest rates and repayment terms are predatory and may even put you in more debt.
The bottom line
If you have been refused a debt consolidation loan, it is because your application was considered too risky due to one of the above factors. Talk to your lender about your options and see if there is another way to prove that you will repay the loan. If that doesn’t work, consider talking with your current creditors to see if there are any repayment plans you can use to help you get out of debt faster.