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Published On: Tue, Apr 16th, 2019

Some Reasons Why Your Debt Consolidation Loan Application Is Declined

People who are having a tough time catering to their creditors’ obligations would find it really enticing to pay a single monthly installment by consolidating multiple debts into one larger loan. You consolidate multiple loans into one single loan which is known to combine effectively debts from a number of creditors usually, at a lower interest rate and also, a relatively lower monthly payment. When you consolidate multiple debts, you are supposed to make just a single payment to a single creditor each month instead of making multiple repayments to several creditors as per https://www.huffingtonpost.com.  

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A consolidation loan could make your life stress-free and easier since you do not need to worry about numerous payments or keep track of multiple loans. Moreover, making just one payment every month could even culminate in substantial savings over a period of time provided you managed to get a loan at a lower rate of interest as compared to your already existing loan interest rates. You may no longer need to ignore some of your monthly bills.

In this context, you need to realize that when people are in a financial mess, or when they are burdened under the pressure of ever-mounting debts, they often decide to take out a debt consolidation loan for effectively managing and solving their financial issues. They take out a consolidation loan for effectively lowering their rate of interest and combining all their payments easily into a single manageable loan. This could be a good idea for many people in financial distress but getting a consolidation loan definitely, is not such an easy affair as many of you may assume. On many occasions, we have found that applications requesting a consolidation loan have been declined. If you are wondering why, here are some of the main reasons why some loan applications are rejected by the banks and other financial institutions.

If You Cannot Offer Any Security for the Loan

Financial institutions generally, ask for collateral or security while applying for a consolidation loan, particularly, when an individual is having issues managing all his loan repayments. The lending institutions would like to make sure that they would be getting back whatever money they are lending. Can’t you consider other options if you do not have any collateral to offer? Yes, many people opt to use a credit card for paying off other debts often at a 20 percent rate of interest. Many others consider applying for an appropriate unsecured loan offered by a finance firm at around 30 percent rate of interest. However, if your intention is to cut down your existing debts, it is quite likely that these options would not help you achieve your goal quickly as a chunk of your loan repayment would constitute the interest and hardly any would get added to the principal amount.

You Have Issues with Your Credit Score or Credit Report

There could be credit score and credit report issues that could play a pivotal role in the rejection of your loan request. Late loan repayments or even debts in the collection are known to hurt or adversely impact your credit scores. Owing high balances could be further complicating the issue. Moreover, you need to examine your credit report consistently and get all errors if any, rectified. It is mandatory to build a good credit score for getting your consolidation loan application approved. Moreover, you require making your repayments on all your other forms of debts or loans for generating an impressive credit score.

You Do Not Have Adequate Income for Being Eligible for the Consolidation Loan

Usually, minimum payments for a credit card are quite low and you could take decades for paying off any credit card balance, however, that is possible only if you have already stopped using the credit card while you are in the process of making the payments. But consolidation loans actually, cannot be repaid extending over a long time frame unless you have offered your home as collateral. Consolidation loans generally are amortized within three to five years only. Obviously, this implies that the repayments are bound to be high enough to pay off the entire loan in just three to five years. Suppose your income is not enough for handling that sort of a payment, your loan request could be declined.

Not Enough Credit History

Your credit history is a record of how you use your credit and is viewed as a mark of your credibility as a borrower. A lot of consolidation loan candidates have not been using the credit of their own for a long time, which could work against them. A strong credit score is built over a long period and takes very careful planning. Credit history can also be built by using your available credit responsibly, like having a credit card for safety and using it only in extreme cases. You should also know that some reporting agencies report joint loans only in the name of the primary borrower so you should review how that looks for you. Request your credit history for free from an auditing agency and review it to know more.

Taking on Too Many Debts

Credit unions, banks, and financial agencies typically let you borrow a maximum of 40% of your annual income for consolidation loans. On applying for a loan, it will be added to all your existing payments and checked whether it exceeds that limit. This is typically called the Total Debts Service Ratio. You might have to apply for a smaller loan or seek alternatives if this limit is crossed.

Conclusion

In case your consolidation loan request has been declined, there is no need to lose heart. You could still find ways of overcoming your financial issues by simply seeking professional assistance to determine effective ways of repairing your credit. Moreover, credit counselors could help you determine effective consolidation options as per your unique requirements and eligibility status. Credit counselors are supposed to be qualified professionals who are responsible for helping all those individuals who are reeling under the impact of excessive debts and poor credit scores. Seek professional advice and assistance at once to get easy loan approval and to manage your debts well.

Author: Charlie Brown

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