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Most of the people try to take loans only when they are in dire need of getting funds. This money can be used for emergencies, a new car and even for home repairs. For any reason a person needs a loan, it can be disheartening when they are turned down. Thanks to the Equal Credit Opportunity Act, lenders are required to disclose their reasons for rejecting a loan application. Below are the three most common reasons.
Reason 1: Credit Reporting
The first thing a lender will do when someone applies for a loan is to pull their credit report. Credit reports provide a lot more information to the lender than just a number. If a person already has a large number of loans outstanding, it may make the lender a little wary about increasing the person’s loan.
This credit report will also show the number of collection accounts, past due accounts and payment history of the person applying for the loan. These are all components of a credit report that can paint a picture for a lender about whether they are willing to loan you money or decline a loan request.
Checking for discrepancies in credit reports can solve a lot of problems for a potential borrower. If they find that there are things on their credit report that don’t belong to them, they have to call and get it fixed.
Reason 2: Insufficient means to pay
Lenders need to know that the money they are lending is going to be paid back. When a borrower does not have sufficient income or the means to repay the loan, a lender may be less willing to extend a loan to that borrower.
While applying for a loan involves a tremendous amount of paperwork, the lending company will ask the potential borrower to list their income and be prepared to provide proof that income exists. Having this proof can help the lender justify lending the money if there is ever a question as to why they approved the loan.
Reason 3: Too Much Debt
Lenders take a close look at a potential borrower’s debt-to-income ratio before lending them more money. If a lender sees that a person is already using 50% or more of their earnings to pay off loans, a lender may consider them a high-risk borrower.
Credit isn’t the only thing lenders will look at in terms of a loan. Cost of living, credit cards, student loans and savings accounts factor into the amount of debt a person has.
Hard Money Loans as an Option
If a potential borrower would like to retry the loan application process, the first place is to fix the reasons for the denial. After checking the validity of the information on their credit report, reducing their debt-to-income ratio, and either adding collateral to the loan or providing proof that their income is sufficient to support the loan, they will then You can try from The most important thing for borrowers to remember is that double-checking for accurate information is key. However, if the banks are still rejecting your application, another option for a loan is going through a private hard moneylender. Hard money lenders provide loans based on real estate equity, so they are a good option when banks won’t approve you.
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