Having a loan application declined is never a good feeling, especially when the need for financing is urgent. In recent years, lenders have tightened their lending guidelines, making it more difficult for some applicants to get a loan approval when they need it. It can be a bit overwhelming knowing that a lender is not willing to offer you an affordable loan, but it is not the end of the road for most borrowers. Understanding why you were declined, what alternatives to conventional loans exist, and the specific steps you can take to prevent it from happening in the future are all beneficial in moving past the uncomfortable situation.
Know the Why
There are several reasons why a loan application may be declined, with the most common including problems with an applicant’s credit history. All conventional lenders take a close look at payment history, credit utilization, and other pertinent information detailed in a borrower’s credit report at the time an application is submitted. If there are any black marks, like a late payment or two, maxed out credit cards, or a court judgment or bankruptcy, a lender is likely to decline an application because the borrower poses too much of a risk. You may be aware of these warning signs to lenders before submitting an application, but in some cases, errors or new negative details have been added that you did not know about. In either case, it is important to check your credit report and history after a loan decline to pinpoint the problem – and then work toward fixing errors or black marks where possible.
Understand Your Options
A declined loan application is not the end-all to getting the financing you need. If you have assets you own outright, like a vehicle or other valuable personal belongings, you most likely qualify for a secured loan. But can you actually get a title loan in 10 minutes? A local car title lender may be a smart alternative when your need for financing is immediate and credit history is not in the best shape. You may also consider tapping into your available credit limit on a credit card as a temporary fix. Unsecured loans may offer a lower interest rate than these alternatives, but the higher cost of borrowing is often offset by the ease of qualifying for a different type of loan or cash advance.
In addition to alternative lenders, you may have the option to apply for an unsecured loan almost immediately with another conventional lender. Other banks or credit unions may have less stringent credit requirements or lower standards for proof of income. It is common for borrowers to shop around with similar lenders in order to get the financing they need, but approval is not always guaranteed after a loan decline.
Plan for the Next
The best thing you can do after a loan decline is understand where things went wrong and work toward correcting the issues. Lenders are often able to provide you with details as to why an application could not be approved, whether that be a lack of steady income, a credit blunder, or too many outstanding debt obligations. This information is powerful as it gives you direct marching orders to help prepare for your next loan application. So long as you are willing and able to put in the work to improve your credit, generate stable income, or pay down other debts, the next loan application process is more likely to lead to an approval.