Credit card debt is a problem for millions of Americans. Most of these individuals seek refuge in debt consolidation loans, where they get personal loans from lenders to pay off their debt. Unfortunately, not everybody qualifies for a debt consolidation loan for various reasons. Here are some reasons you just can’t get the bank to give you a debt consolidation loan and what to do.
Reasons for Rejection of Your Debt Consolidation Application
Consolidating debt means all your loans get bundled into one. The new loan should have a lower interest rate, allowing you to pay less monthly and take an even shorter time getting out of debt. According to industry leaders like Symple Lending, more than half of the individuals who apply for debt consolidation get their applications rejected.
No Security
Most financial institutions ask for collateral before accepting your application, especially if you have a record of not keeping up with payments. To ensure they’ll get all their money back, they’ll need something of value to hold on to.
If you don’t have collateral, you can use your credit card to pay off some of your debt at an interest rate of 20%. Unsecured loans from other financial institutions are available but at 30% interest or higher.
Poor Credit Score or Credit Report Problems
Issues with your credit report can also lower your eligibility for a debt consolidation loan. You’ll also hurt your credit score and compromise your debt consolidation application by making frequent late payments on the existing loans. It would help to calculate your credit score and range your eligibility before booking you talk to a Symple Lending expert.
Insufficient Income to Qualify for the Loan
Lenders also look at your income before consolidating your debt to confirm that you can repay your new loan. Debt consolidation is unlike credit card debts that accept minimum payments, taking you decades before clearing the debt. These loans require the borrower to make high monthly payments to ensure you clear the loan in less than five years. Your application may not go through if you lack the income to support these payments.
What to Do?
Getting denied a debt consolidation loan does not mean you’ve exhausted all approaches to getting out of debt. Instead, take it as a sign to change your financial life and improve your spending. Here are the steps to take after getting rejected:
Make a Budget
First, create a budget and religiously stick to it until your financial condition improves. Luckily, there are dozens of budget-building apps making the process easier.
Know the Reason for Rejection
It would also help to try and investigate why your loan application was designed. After getting this information, work towards improving your eligibility by correcting them.
Fix Your Credit
The best approach to ensure your application goes through the next time is to work on your credit before applying. Lenders are more generous to individuals with good credit scores and financial reports.
Your debt consolidation application may get rejected for many reasons, and it’d help to understand these reasons beforehand. Instead of giving up after rejection, find a professional to go through your financial situation and advise on the best approach to consider.
