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Entrepreneurs are rejected for loans every day. Sometimes, it’s a loan we could live without but in other cases, it’s much needed. That’s why it’s important to understand the reason your loan applications are being rejected. By having a clear understanding of what lenders look for, borrowers can get to work on improving their likelihood of getting approved.
There are various reasons a loan can get rejected and you might not always find out why yours isn’t approved. However, some of the most common explanations can be found below.
1. A Bad Credit Score
The most common reason loan applications are rejected is having a bad credit score. This makes you far less likely to get the approval you need since you present the biggest risk for lenders. It doesn’t even have to be that your score is bad in general. All lenders have minimum credit score requirements and if you don’t meet their requirements, it’s not worth applying.
That being said, there are still options available even with a bad credit score. While you might pay slightly more on interest, there are plenty of options available. It shouldn’t be too hard to find a loan that works for your budget.
2. No Credit History
It’s one thing to have plenty of money put away but if you have no credit history, you might find your loan application getting rejected. Having a provable credit history shows lenders you’ve upheld previous borrowing commitments in the past. This way, they’re far more likely to accept your loan request.
While it’s a good thing to not rely on credit, some people take out credit cards for this precise reason: to gradually build up their score and history for important loans down the line, like mortgages and car financing. Check your credit score here.
3. Your Income Is Insufficient
Are you making enough to take out a loan? The thing is, there’s no defined earning threshold for borrowing. However, lenders like to know that they’re handing out money to people that can actually afford to pay it back. Whether you borrow from a bank, a fintech company, or a credit union, no doubt they’ll all want to see what money you’re making and whether your earnings are consistent.
If you’re not in fixed employment or aren’t making enough to clearly demonstrate the ability to pay back your loan, this is likely the reason for your loan application’s rejection.
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Debt continues to haunt us even after we’ve paid it off. But if you’re applying for a loan and you have outstanding arrears with other companies, this is quite the put-off from the perspective of lenders. If you’re not meeting your obligations as a borrower elsewhere, why would this company take a chance on you? .
Consolidation loans, however, exist to bring all outstanding debts into an affordable monthly payment plan. If you’re denied for loans due to existing arrears, consider waiting until you next apply and clear them first, perhaps with a consolidation loan.
5. Missing Details
It might sound unlikely, but there’s always the chance that you’ve inputted your details wrong. If none of the above applies to you and you’ve still been denied, then it’s possible you didn’t dot a few I’s and cross some T’s.
Whenever you’re filling out a loan application, check, check, and check again that your account information, social security number, and even your name and address are entered correctly. This mistake may cause your application to be rejected. Loan rejections leave a mark on your credit score and this is something you’ll want to avoid for future applications.
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