Even though banks, credit unions, and mortgage lenders provide money, they think only some are candidates for a debt consolidation loan. Your application can be rejected, or you might get a loan offer with a rate of interest that won’t help you with your debt issues. If you are denied a debt consolidation loan, what are your subsequent actions and what alternative debt solutions should you consider?
Summary of Contents
- What should I do next if I am rejected?
- If your application for debt consolidation is denied, you have options.
- I’m unable to obtain a debt consolidation loan; why
- A debt consolidation loan is an additional loan used to pay off previous debts.
Risk management is the business of lenders. They are willing to extend new credit if they believe a person can afford the loan instalments. They will analyze your credit history and inquire about your current income, assets, and debt burden to evaluate your loan application.
Asking your lender why their decision is the first thing you should do if your application for a consolidation loan has been rejected. Understanding the causes can assist you in deciding what to do next.
The top 5 reasons you might have yet to be approved for a debt consolidation loan are listed below, along with what you can do in each situation.
Poor Credit Rating
Your lender may reject your application based on your credit report if you have a low credit score due to missed payments, high credit utilization, or accounts in collections. In most circumstances, a consolidation loan will demand a credit score in the mid-600 level. However, some lenders are ready to offer bad credit consolidation loans even if your score falls below 600.
Whether your issue is bad credit, research the elements that affect your credit score to see if you may raise it before reapplying. Some lenders offer no credit check consolidation loans, but beware—these loans tend to be predatory and have sky-high interest rates. We do
Lack of a Guarantor:
A loan that is secured by property you own is the most accessible type of consolidation loan to obtain. A secured loan might be like a second mortgage or a home equity loan. Equity loans on your home, a car, stocks, or other property you own outright can serve as collateral. A secured lender may take and sell these assets to recoup some of the money you owe if you stop making payments.
You can only be approved for enough money to pay off your current obligations if you have assets that can function as security for a debt consolidation loan. Consider applying for an unsecured consolidation loan if you lack collateral. Consolidating with an unsecured loan is far more expensive, though. Depending on the lender, unsecured consolidation loan interest rates range from 39% to 59%. It’s highly improbable that taking this approach will aid in debt relief.
The idea behind a consolidation loan is that you ask one lender to take on multiple creditors’ debts. Lenders may have reservations about your ability to repay large sums of debt if you have many of them. A lender might be concerned about acquiring additional credit in the future if you have high credit card debt because it could mean your lifestyle is outstripping your income.
If you have been rejected because of excessive debt, the remedy is to seek ways to reduce wasteful expenditure and allocate some extra money for debt payback. In the future, you might be approved for a low-interest debt consolidation loan if you can lower some of your balances. Wait at least six months between applications to avoid damaging your credit score. Repeated complex queries will do this.
Affordability’s opposite is your monthly income. A traditional lender will likely reject your application if your debt-to-income ratio is 43% or more. According to them, the greater your debt payments are concerning your income, the greater the likelihood you will default.
Even if you have bad credit, you can increase your chances of getting approved by getting a family or friend to co-sign your application. However, if the lender rejects your application because they are concerned about your income level, you might jeopardize your cosigner’s financial stability.
The credit Market is Tight.
How willing financial organizations are to lend money at any one time is one element you cannot control. Even for home equity lines of credit and mortgage refinancing, most lenders restrict their lending standards during economic downturns or rising interest rates (HELOC). Banks are just unwilling to lend, so even borrowers with a moderate credit risk profile and home equity may discover they cannot borrow enough to pay off credit cards and other debts.
Options if your application for debt consolidation is rejected
If you’re turned down for a debt consolidation loan, you might try to view this as a blessing or an opportunity rather than getting irritated. In your situation, a debt consolidation loan’s drawbacks might outweigh its benefits. Based on your financial status, you may not qualify for a loan substantial enough to deal with all your bills. Any consolidation loan’s average interest rate can be too high, and you might need help to sustain the monthly payments over the long run.
Consider these alternative debt relief options if getting out of debt is your goal.
Debt Management Plan
Dana Trustee offers a debt management program. These repayment plans are available to anybody who qualifies, even those with less-than-perfect credit.
Most consumer credit products, including credit cards, unpaid bills, and even payday loans, are admissible; however, tax debts and educational loans are not. Additionally, all lenders must concur to take part. Any lender may decide to withdraw.
However, you need to return your loan plus 10% to cover fees to the credit counselling organization. If you choose the maximum five-year payback period, your monthly payment will equal your total debts + 10% divided by 60 months.
Another way for consolidation is to consider a consumer proposal payment plan. A proposal allows you to offer to pay back less than the total amount still owed while consolidating several debts. There are neither interest charges nor additional costs after the settlement agreement you reach with your creditors,
A consumer proposal provides debt settlement rather than debt consolidation. Terms are negotiable, and settlement offers ranging from 20% to 30% of the total amount are common. If you pay back the proposed settlement amount within five years, your payment plan might be weekly, monthly, or any other number that fits into your budget.
As long as the majority of creditors (measured by dollar amount) concur, a consumer proposal can bind all of your creditors to the same arrangement if you have several unsecured obligations.
You should get in touch with a Licensed Insolvency Trustee about a better debt solution if you do not qualify for a debt consolidation loan, are only making the minimum payments on your existing debts or risk missing payments, and your lender isn’t providing you with a road map out of debt. We can assist you with credit card debt, payday loans, problematic auto loans, and even student loans and tax debt.
For a free consultation to discuss solutions that could lower your monthly payments and assist you in getting out of debt, get in touch with us.
Dana MacRae Licensed Insolvency Trustee has been helping people manage their debt since 2000. With 10 offices across Southwestern Ontario, it’s easy to schedule an appointment. Just go to www.danatrustee.ca and book your appointment online. We offer video conferencing, or book a home consultation and have the trustee come to you. Contact us today at 1.800.665.9965 or [email protected] to learn more about our services and find the financial solution that’s right for you.