Being turned down for a loan can be, at any time in your life, can be very disappointing whether it’s a mortgage loan, car loan, small business loan or any other type.
At Wasatch Peaks Credit Union, we can help if this happens to you. There are several possible reasons why a loan application might be denied, and also a few important steps you should take if you’re denied – especially if this denial was a surprise to you or based on factors you were unaware of previously. Let’s look at some of the steps to take if you’re denied on a loan application, plus some of the possible reasons behind your denial in the first place.
Find out Reasoning
Before you do anything else, take some time to learn why your application was rejected. Reach out to the lender who you made the application with and ask if they can provide reasoning, whether it’s in a written report or just during a simple phone conversation. Denials will have very specific reasons behind them, which we’ll go over in our next section, and it should be no trouble for a lender to explain these reasons to help you understand them.
There are a few common reasons why loan applications might be denied:
- Debt too high: When you apply for a loan, the lender takes stock of your entire financial picture to determine the likelihood of you repaying the loan based on your history. If they see high amounts of debt on credit cards or other loans, or especially any past defaults on loans, this will lower your chances of them looking favorably on your repayment prospects.
- Income too low: Down similar lines but on the flip side, income that isn’t high enough is a red flag for lenders. If they determine that your monthly income is not enough to adequately make payments given your other financial obligations, they may deny your application. One way to help avoid this is by saving up for a larger down payment on your loan, which will lower your monthly payments and make approval easier even if you don’t have a huge income.
- Low credit score: This relates to current debt, but can also go back further into the past. Check your credit score in advance of applying for any loan, as it’s one of the single largest factors in whether you’ll be approved or denied.
Another step to take if you’ve been denied a loan by one lender is to shop around for others. This is particularly true if you’re confident in the areas listed above, but were denied for some other or unknown reason – another lender might look more favorably on a similar situation.
For more on what to do if you’re denied on a loan application, or to learn about any of our home loan or auto loan options, speak to the pros at Wasatch Peaks Credit Union today.