When you need money in a hurry, few things can be as distressing as being rejected for a loan – especially when the loan was the last option. At this point, you’ll likely be dreading loan rejection in the future. But it’s also worth mentioning that not all hope is lost.
Understand Why Your Loan Was Rejected
There are a number of reasons why a loan can be rejected, and knowing these can be the difference between another rejected loan and a successful loan application in the future. Personal loan rejection reasons include:
- A bad credit history. As lenders tend to use a credit score to gage a borrower’s financial history, a bad credit score can lead to a loan request being rejected. Thankfully, there are practical ways to improve your credit score.
- Your lender does not believe you can safely repay the loan. A responsible lender will consider your income, current debts, and more – and if they aren’t convinced that a loan can be repaid without putting you in further financial distress, they will reject your request.
- You have defaults listed on your credit report. These are overdue payments of more than 60 days where debt collection has started.
If your loan application is rejected, see if any of the personal loan rejection reasons above apply to you. You may need to improve your credit score or pay off some outstanding debt in order to prove to future lenders that you are responsible with money.
Prepare For Your Next Loan Application The Right Way
Now that you know the reasons why a loan can be rejected, you are better equipped to set up your next loan application for success.
Get A Copy of Your Credit Report
As mentioned above, your credit score can greatly influence whether or not your loan application is successful, as lenders use this to better understand your financial history. You can get a copy of your credit score from sites such as Equifax, Experian or illion.
Pay Off Some Debts
Paying off outstanding debts can go a long way when it comes to a successful loan application, as it increases your borrowing power and shows lenders that you actively work on your financial situation. Plus, it lessens financial stress on yourself.
Consolidate Outstanding Debts
Debt consolidation is a great way to bundle all of your outstanding debts into one, with the added advantage of being able to take advantage of a possible lower interest rate. When you consolidate your loans, you will also be making just one repayment with one interest rate, rather than lots of smaller repayments (and fees!) throughout the month.
Form A New Budget
A budget is, more or less, an essential in anybody’s life, whether you’re an expert saver or the complete opposite. A budget helps you to assess where your money is going every week, fortnight or month. When you create a budget, you can set money aside for savings, for groceries, for car repayments – whatever you need. But when you make a new budget ahead of a loan application, you should also have a category for loan repayments. This way, you’ll be in much better control of your finances and know that you have money set aside to repay your loan.
Don’t Apply for A New Loan Until You’re Ready
This is a very important piece of advice, especially if you’re afraid of loan rejection, as applying for multiple loans within a certain period of time is a quick way to damage your credit rating. Instead, take the time to set yourself up for a successful application, allowing time to pass between applications.
Alternatives to A Loan
If you are sure that you will not be approved for a loan in the future, don’t fret: there are other options out there if you still need to borrow money.
- Apply for a credit card. While credit cards aren’t recommended for everyone, they can be useful tools in the hands of the financially savvy. Keep in mind however that credit cards can take time to be approved, whereas applying for a loan online can have money in your account in under 24 hours.
- Borrow money from family or friends. It’s not always pleasant to ask family or friends for money, but it is a way to potentially borrow money without interest.
- Seek an alternative loan. From payday loans to low income loans, we have a number of alternative loans available.
At Cigno, we pride ourselves on our responsible lending practices that have helped thousands of Australians when struggling with financial problems. Talk to us today and find out how we can be of help to you.
Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.