We have already analysed the reasons for your loan getting rejected despite a good credit score. Let us look at what you can do after the loan application is rejected. It is common to feel dejected. But, by following certain steps you can turn this set-back into a lesson in finance management. These steps are not a guarantee, but are extremely helpful actions that will increase the probability of your loan being approved the next time you apply.
1: Find out why your loan application was rejected
As with every problem, understanding its root cause helps in resolving it better. You can ask the lending institute for the weak spots in your application and the specific reasons due to which they have rejected your application. The key points in this step are â€˜ask as many questionsâ€™ and â€˜be specificâ€™. It is possible that the answers you receive may not be clear. Do not hesitate in clarifying them. This is a very crucial step as it reveals the reason for loan rejection, which takes us to the next step of rectifying the errors.
2: Correct the correctable errors immediately
It may so happen that the previous tenant of your house was a defaulter, due to which your application was denied. In such a case, you can report it to the credit assessing agency to resolve the issue by updating your information.
If you havenâ€™t been at the address or the job long enough, applying after a sufficient gap of time, to cover the required duration is a sensible action. Do not go lender shopping as it will only hurt your credit score and lower the chances of approval.
If your income does not meet the eligibility standard, you can opt for a deal that allows lower down payment or longer tenure.
If the loan amount you applied for is more than the appraised value of the property, then reduce the amount or ask for a reappraisal of the property.
If you are over-leveraged then reduce the Debt To Income (DTI) ration by paying off the previous loans as soon as possible. Also, donâ€™t make any major purchases when your loan application is pending, as it affects your DTI.
Make sure your work status remains unchanged (employed/ self-employed) because the banks require a minimum of two to three years of any type of employment history along with IT returns as proof before approving a loan.
When any lending institute requests for information from you, respond to it immediately. The longer you take to provide the information they require, the higher the possibility of rejection.
Thus, re-evaluate the property, increase loan tenure, or decrease the loan amount so you get the approval based on your profile. Whatever may be the reason for loan rejection, take remedial steps as soon as you find the reasons for it.
3: If a low credit score is the reason then revisit your credit report
It is advisable to get your credit report from top credit reporting agency. Check your report for accuracy, thorough information, past errors and lender remarks. A small mistake from your past could be affecting you in the present. Anything from missed payment, to delayed payment, to â€˜settledâ€™ remark on the report could result in lower credit score, affecting your loan application. When you fall in the â€˜high riskâ€™ bracket, lenders refuse granting you a loan. Hence, taking steps to improve your credit score is absolutely essential. Errors in billing, fraudulent collections and cancelled account can be brought to notice of the reporting agency. You can inform them in writing about the discrepancies and errors and provide valid proofs so they can process them and rectify. Improving your credit score will take some time. But it is the most important step you can take for loan approval.
4: Apply for a new loan
Re-evaluate your credit report and loan application from respective experts and apply for a loan again. However, remember not to apply for a loan immediately as you should not appear desperate to the lenders. Take enough time for the whole process. Go through the fine details and only after thorough consideration, put forth the application. Also, remember to:
-Be aware of the entire loan process â€“ from rate of interest to tenure to EMI to processing fees to refunding the processing fee in case of rejection to processing duration, etc.
-Do a thorough research about the lender you are approaching along with a complete knowledge about your finances and credit history
-Provide the lender with your complete and accurate information
-Have your paperwork up-to-date, with the most recent on top
-Have your credit card and other bills fully paid