There are many reasons you might be rejected for a loan. Not all of them are because you have bad credit. Regardless of reason for denial, we’ll share some ways to get an installment loan for bad credit as well as reduce the odds that you’ll be rejected next time. We’ll also provide insight as to why your loan is repeatedly rejected through no fault of your own.
Get Control of Your Bills
Did you know that a late payment on your auto insurance bill could cause your insurance rate and credit card payments to go up? Insurers often see your bill payment history as a reflection of your trustworthiness. Pay the insurance bill late, and your credit goes down. Interest rates on your credit cards could go up, as well. The solution to this is to get control of your bills. Get organized. Create a list of all of your accounts and what the payments are. You might have to pull your credit report up to find accounts you thought were closed secretly pulling your credit down, such as an unused store account now charging an annual fee you’re late in paying because you didn’t even know you owed it.
Stop Exercising Your Credit
Your credit score uses several factors to gauge your creditworthiness. Opening a number of new accounts in a short period of time is a red flag to lenders. Closing old accounts can hurt your credit, too. Consider ending the practice of shifting your debt between credit cards in a never-ending chase for low teaser rates. Invest that effort into creating a budget, lowering your spending in various categories, and paying off the debt.
Another mistake people make is rushing out to make big purchases at once. For example, a new graduate buying a new car while they’re house hunting could cause them to be rejected for a mortgage. Opening several credit cards shortly after you’re legally old enough to apply could cause your car loan application to be rejected.
Do Your Due Diligence with the Application
It is amazing how many people leave necessary fields blank on an application. Leaving off information necessary to verify income or employment can prevent your application from being approved. Leaving off contact information can cause the application to be rejected as well. Fail to provide copies of your tax returns or pay stubs, and it will probably be rejected. Leave off other critical information like contact information or your signature, and your application will be denied. Failing to explain what the loan is for might be enough to prevent it from being approved.
Other mistakes are less obvious. For example, using a nickname instead of your legal name could prevent them from accepting your application. A typo in your Social Security Number or driver’s license number will cause them to reject the application. It could be a mistake on your part but it looks like identity theft to them. Not keeping your information up to date could cause rejection, as well, such as when you use old financial reports for a recent loan application. Don’t use a driver’s license that shows an old address to prove your identity when your application has a new address on it, unless you can explain that to the institution.
If you lie on the application, it can be rejected. Exaggerate your income, and they will reject your application when they realize this. In a worst case scenario, you could be blacklisted by the lender. Then any other application you submit to them will be rejected.
What type of mistakes do people make? A common one is being overly optimistic on their income. Don’t over-state your hours worked per week. Don’t say you’ve worked with a company longer than you have. Don’t use your best year’s commissions as the basis for applying for a loan. And don’t lie if you’ve had foreclosures or bankruptcies in the past.
Work with a Different Lender
Sometimes the solution is to find another lender. Credit unions and community banks are more likely to work with budding entrepreneurs. Big banks simply don’t want to issue five thousand dollar loans to small businesses. They’re also less likely to loan money to someone turning their life around. This is why you’re advised to visit a credit union or community bank if you want to sell a car you can’t afford but need a note for the difference.
Another variation of this is applying for a loan with a lender who doesn’t do much business in that area. For example, farm credit services specialize in funding purchases of land and farm equipment because big banks generally don’t want to deal with it. Corporate institutions may reject purchases that are considered non-conforming. For example, they will issue a mortgage for a condo or single family home in the suburbs. But they will generally reject a vacation cabin in the middle of nowhere because it will be much harder to sell. They also rarely subsidize the purchase of raw land, preferring to only work with you on completed homes. This is why you may have to work with one lender to buy the land and someone else to fund the construction of your dream home. And it explains why that unusual home purchase is almost impossible to make unless you save up the cash for it.
Reduce Your Risk Profile
Your loan may have been rejected because you or the purchase itself is seen as too great of a risk. How can you reduce the risk profile? If you’re buying a vehicle, business equipment or property, increase your down payment. This reduces their risk because there is more equity in the property. On the other hand, you shouldn’t roll the closing costs of the loan into the loan itself. If you can’t pay the 1000 dollars to close the loan, the odds are much greater you will default on the loan itself. If they don’t reject the loan, they’ll make up for the risk by raising the interest rate.
Another option is having someone cosign the loan. They become liable for the debt if you don’t pay. Note that this is liable to strain your relationship. Don’t ask someone to cosign who cannot or may not pay. You don’t want to risk losing a phone or car because your ex won’t make payments when you can’t. However, if your loan is repeatedly rejected despite having a cosigner, find out what their credit is really like.