Getting turned down for a loan is not a thing you would celebrate. After you get over that initial disappointment, your mind is probably struggling to understand why.
Many more questions arise like: What now? Will I ever be able to get a loan? But releasing the anger, disappointment, and sadness is the first step to returning to the right track and staying on top of things.
So, forget the emotional responses you might have and dive into the practice that will help you become successful.
Here are some of the practical
steps that you should take when your loan is denied:
Get to the bottom of the situation by finding out why
This step is crucial. Why were you denied? Which factors mostly led to that. And since lenders are required by laws to give you that information, it won’t be too hard for you. According to the Equal Credit Opportunity Act, all lenders need to tell you why they denied your request for a loan. The lender will probably provide this in writing within thirty days of your denial. This letter will contain some crucial information to move further with your loan.
For one, they will give you the exact reason why the credit was denied. The reasons given have to be specific and can’t be vague. They also need to give you clear reasons, not information on how to get them.
If it was a credit report as one of the factors of denial, then the lenders have to provide a name and an address as well as other information of that credit report provider agency. If the reasons are unclear to you because you are unfamiliar with the terminology, you can call one of the numbers on the report and ask for further explanation. Don’t hesitate to ask questions or call those numbers; it’s their job to help you out. This information is crucial to getting a loan in the future.
You will also be given a number of the agency to call if you feel like the lender has discriminated against you.
If You Can Fix The Mistakes, Fix Them
If you can understand the denial factors, do your best to fix them – if you can, that is. There can be many reasons why your loan was denied. For example, maybe your income isn’t enough to meet all requirements. Maybe you were not in your current job or address for long enough at the time of the request for the loan.
Insufficient income is one of the most common reasons for loan denial. If this is one of the reasons you got denied, you can apply specifically for loans designed for low to moderate-income borrowers. You can take advantage of the lower down payment with this type of loan, and you can likely meet all of the requirements. The two best examples of loans for low to moderate borrowers are VA and FHA loans.
Another reason you might have been denied is that you asked for a loan that’s too large – larger than 95 per cent of the value of your property. If this is the case, you will likely be denied, and there are three things you can do from here. You can either negotiate the purchase price and lower the loan amount needed, you can make an additional down payment to cover the difference, and there could have been a mistake during the appraisal. In the latter case, you should ask for another appraisal.
Get a copy of your credit report.
The reason for the denial can be your poor credit score or mistakes in your credit report. Things you did in the past can come back to haunt you through your credit report. Your credit report may be low, leaving the lender with no choice. Your letter should state if your factors for denial include your credit report. Remember that you have the right to get a free credit report from any agencies that collect the data for the credit reports. This goes for only 60 days, so you should ensure you get your credit report within that period.
When you get the credit report, read it thoroughly and ensure that every piece of information is accurate and that everything is noted completely. If you find any errors, you should fix them. Billing errors can be a mistake in arithmetic, and you could have made a payment or have a credit which didn’t appear in your report. The creditor could also have mailed a bill to your previous address, resulting in a late payment. But, remember that this error can be a mistake on the creditor’s part if you told the creditor about this address change 20 days before the billing period.
Get another opinion
Some lenders have divisions dedicated to reevaluating and going through the loan applications that got denied. They will investigate errors in your credit report, correct them and investigate the agencies that dealt with your credit report and other data. They will then send the correct copy of your credit report and data to your lender. You can contact the lender and follow up with them. You can ask some questions as well and request a second opinion from the second level of review for loans.
Apply for a new loan
Getting turned down once isn’t the end of the world. It doesn’t mean that you should stop. You will get approved eventually, especially if you do everything right the next time. Don’t get discouraged. Lenders have different factors that they look at. Some banks have lower criteria than others, and you can shop around to see who can help you the most. Another lender might have just what you are looking for.
Getting denied a loan is a discouraging experience, but you shouldn’t let that stop you from moving on. Try to fix what you can, shop around and find the best lender for you. It’s not easy, but it shouldn’t be a decisive factor in your life. Good luck!
Featured image source: Freepik (Affiliate Link)