It’s disappointing to get denied a loan you really needed. You’re back at square one – now what? Don’t be discouraged. That loan might not be out of your reach yet. If a loan is truly your best option (remember that you should have a debt management strategy to pay it back so you don’t ruin your credit), you still have a chance. Here’s what to do if you’re rejected for a loan.
Understand Why You Were Denied a Loan
Look at the cause to brainstorm a solution. Common reasons for being denied a loan include bad credit, insufficient or unverifiable income, and high debt-to-income ratio. They’re frustrating circumstances, but you can improve them. They’re not quick fixes, but addressing these issues will make it easier for you to borrow in the long run. That brings us to the next step on what to do if you’re rejected for a loan.
Think of Solutions
If you were denied a loan because of a low credit score, you can boost it. You can also request your free annual credit report – if you catch any mistakes, contact the credit bureaus to correct them. If you were rejected because of your debt-to-income ratio, look into ways to lower it. The debt snowball method (where you pay the smallest debt first) is an effective way to pay down debt while giving you a strong sense of progress. You can also supplement your income with side gigs in order to pay off debt faster.
But for people in a bind, they might not have the time for a long-term strategy. If you need a quicker strategy, there are a couple of options to consider (with caution). For example, if you’re very close with someone who has good credit, you could ask them to be a co-signer. Although this might make getting approved for a loan easier, there is a level of risk for both of you – if you fail to repay, you’re both on the hook, and the co-signer’s credit score will decrease, too.
You can also improve your chances of getting a loan by using collateral. If you don’t have perfect credit, a collateral loan might be easier to get. The interest rates are also usually lower compared to unsecured loans. Furthermore, it provides short-term liquidity if you need money fast. With a collateral loan, you pledge assets such as your house or car to a lender – which they can seize and sell to recoup their money if you default on your payments. Before you commit to a collateral loan, it’s imperative that you strategize a repayment plan. Increasing your income and cutting costs will make repayments easier. You also won’t worry as much about losing your assets (though it’s good to have a backup plan).
Look Elsewhere For a Loan
Just because one place denied you a loan, doesn’t mean other places will. For example, if you just got a loan rejection from a bank, you might apply for a credit union personal loan. You would have to become a member of one, but credit unions offer loans with low rates and flexibility. A downside is that applying for multiple loans results in hard credit inquiries on your credit report, which lowers your credit score. However, if you think you can eventually increase your score again, you may want to apply for a credit union loan, which is usually one of the cheaper options.
Avoid Loan Sharks
Even the most sensible person might consider this when they’re desperate. A loan shark doesn’t require a credit report, which makes borrowing from them even more tempting. Though loan sharks might seem friendly at first, you’re going to find yourself in too deep. They can either make threats for slow repayments, or pressure you into illegal activities to settle your debt. If you don’t know what to do if you’re rejected for a loan, find reputable, accredited resources to point you in the right direction.
It’s stressful to think about what to do if you’re rejected for a loan. Luckily, these tips will put you in better shape to apply for another one. If you get approved for one, again, don’t forget the end-goal of repayment – we’re right here to help if you need it.
If you need help paying off debt, schedule a free credit counseling session with us today.