Applying for a loan is a demanding process; there are applications to complete, documentation to provide, and decisions to await. But what if the final decision ends in rejection? It can be painful to hear, and you may not know what to do if the bank denies your loan application.
However, there are additional steps to consider after a rejection that can increase your chances of approval in the future.
Identify the Cause for Denial
Before re-applying for a loan with the bank or another lender, consider identifying the reason for the first denial. There are many reasons for rejection on a loan application, such as having a high debt-to-income ratio, low credit score, or too large of a requested amount.
Remember that you have the right to request an explanation for the denial from the lender, and the institution must provide reasoning.
Review and Remove Negative Remarks on Application
Once you receive an explanation, obtain a copy of your credit report and review it thoroughly. Having late or delinquent accounts classify as negative remarks that affect loan eligibility.
Take time to review each account you own to confirm any outstanding balances are accurate. Dispute all inaccuracies so you can repair your report.
Identify Improvement Opportunities
After reviewing and removing remarks, consider improving the following as they are significant factors in determining eligibility:
Review Your Credit Score
Having a lower credit score may be a factor in loan application denials since most lenders use it to assess your risk as a borrower. It’s standard for applicants with scores ranging from 670 to 850 to experience higher approval opportunities.
Consider Debt-to-Income Ratio
A bank may also reject an application if an applicant’s debt-to-income (DTI) ratio is too high. This ratio assesses your ability to repay loans while still handling all debt in your name. When calculating DTI, lenders divide the monthly debt load by your gross income.
Incorporate Strategies To Increase Chances of Approval
Luckily, there are tactics to help increase your approval odds on a loan application.
Seek Pre-Qualification With Other Lenders
Your pre-qualification status may differ with different lenders and their lending requirements. Most lenders run a soft credit check during this stage and may provide an outline explaining the potential terms if approved, along with the interest rates and loan amounts.
Increase the Down Payment
You may increase your approval odds for a home loan by submitting a larger down payment. More money down can make the loan less risky for the bank to approve.
Decrease Your Requested Loan Amount
Some banks may deny your application if you request an amount too large to repay feasibly. In this case, consider asking for a lower loan amount instead.
You might not know what to do if the bank denies your loan application. Fortunately, there are other steps to take, and our consultants at Superior Financial can help! We’re a personal loan company striving to make the borrowing process more manageable. Contact us today get to receive more information and to get started.