When people are neck-deep in debts, they think of getting a debt consolidation loan to come out of the acute financial crisis situation. People take out a debt consolidation loan with a hope to solve all debt-related financial problems. Debt consolidation comes with major benefits such as much lower interest rates, boost in credit score, and a single manageable repayment every month instead of mind-boggling multiple payments. For many of you debt consolidation could be a great idea but obtaining a debt consolidation loan certainly is not an easy task. Often your debt consolidation application is declined for a host of reasons.
If you are going through a financial turmoil, debt consolidation loan is the right choice for you. A debt consolidation loan seems to be pretty enticing because it promises to allow you to pay less than what you are currently paying monthly precisely for all the accumulated debts. Naturally, you are excited about getting a debt consolidation loan as it looks like a boon in your current financial crisis. However, it could be truly frustrating when your debt consolidation loan request is actually declined. So it is best to be safe than sorry.
Before you submit your loan application, it is pertinent on your part to know and understand some of the common reasons why your loan request could be disapproved by the authorities. Here, we would be discussing the top few reasons for loan rejection.
Issues with Credit Score & Credit Report
While assessing your documents, the loan agencies would be carrying out a thorough background check and your credit report would be scrutinized. If they find unwanted issues relating to your credit score or credit history, your debt consolidation loan request would be disapproved. In this context, you must understand that late debt repayments or even debts in collections would be damaging your credit scores. Browse the Internet to learn the effective ways of calculating your credit score effectively. Read debt consolidation reviews for more information, sound knowledge, and expert guidance every step of the way.
It is mandatory to build good credit. You need to build a robust credit score to qualify and get an approval for a debt consolidation loan and at the same time, it is essential to make all your payments on time on all other forms of debt so that your credit score has impressive readings. When all this information seems to be lacking, your lenders would be having major issues in relying on you.
No Security or Collateral Offered for a Debt Consolidation Loan
Many financial institutions and banks would be asking for some sort of a collateral or security from you when you put in your debt consolidation loan application. If you do not have any security, the lender would be feeling insecure. However, they would want to make sure that by selling off your home, they could easily get their money back. People who do not have any collateral may sometimes qualify for a debt consolidation loan at a higher interest rate or for a smaller debt amount.
We know that debt consolidation loans are actually regarded as unsecured personal loans. But when there is a history of unpaid debts, it would be quite tough for any financial institution to approve your loan request without some sort of a security. It would be really difficult for any bank or institution to rely on you and give you more money when the records clearly demonstrate the fact that you actually had issues in managing your debts in the past.
Not Enough Income for Qualifying for a Debt Loan
Generally, a debt consolidation loan payment means paying more every month as compared to only the minimum monthly payments on your credit cards. By the time you realize that a debt consolidation loan could be of great help in your situation, you may not be in a condition to pay more than just the minimum payments.
In this context, you must understand that credit card minimum payments are actually so low that it would be taking a few decades for paying off your credit card balance provided you have stopped using your credit card when making your payments. Debt consolidation loans are generally paid off over a short time span unless they are home equity loans. Consolidation loans would ideally be amortized over a short period of three to five years only. Hence, the payments are bound to be high and your income may not be high enough to cater to this sort of a payment structure. If your income is inadequate, your loan request may be rejected.
If you are applying for a debt consolidation loan, the credit unions and banks generally would be allowing you to borrow maximum 40 percent of the gross annual income you seem to be drawing from your job. This implies that if you put in a request for a loan from your bank, they would be first of all, adding your proposed loan to all your other existing debt repayments to examine if all those would be exceeding the limit. If the new loan results in you going over maximum 40 percent limit, then in such a situation, you must either drop the idea of debt consolidation or request for a smaller loan amount.
Before you put in your debt consolidation loan request, you must make it a point to get your credit report. You need to assess your credit history report meticulously to make sure that the listed values are all accurate in the document. You also need the important information for guiding you effectively on ways to boost your credit score. If your loan request has been disapproved, there is no reason to panic or lose heart. You must try and figure out what had gone wrong and identify the reason why your debt consolidation application was rejected. Once you know the reason try to work on it to eliminate the issue. Chalk out a budget and better stick to it. You may try building up your credit and consider putting in a debt consolidation loan request again.
Isabella Rossellini is a marketing and communication expert. She also serves as content developer with many years of experience. She has previously covered an extensive range of topics in her posts, including business and start-ups.