Sometimes in our lives we find ourselves in need of a little extra spending money that we just don’t have. Whether this be for a new car, home improvements, or something else we find just absolutely necessary to our quality of life, it just isn’t always in the cards for us financially. This is what motivates a lot of people to take out a loan in the hopes they’ll be able to get whatever it is they’re thinking about.
But unfortunately, they get the same response every time they try and get a loan: denial. Banks have to be very tactical about how they give out loans and to whom, if the 2008 financial crisis was any indication. There are some red flags that will stop banks and even private lenders from being willing to do business with you. Check out GetLoan for some options and further information as well.
Essentially, you need to be able to prove that on paper you are a trustworthy individual who’s going to be able to pay back the money you’ve taken out.
Here’s what lenders most often deny loans based on:
No Collateral
Collateral is something put up by the person getting the loan as a form of insurance to the lender. For instance, if you put your home up for collateral the lender will be given ownership of your house should you default on your loan. Anything worth significant amounts of money that the lender would be able to sell to recoup the money you still owe can be put up as collateral, this ranges from expensive equipment to automobiles to real estate. Lenders really like collateral because it is essentially a guarantee they’ll be repaid somehow even if you end up not being able to repay the loan with cash.
This is why putting up some collateral can help even those with a low credit score secure a loan.
Bad Credit/No Credit
Having no credit can be almost as bad as having a poor credit score. Your credit score shows how able you are to repay your debts, so lenders tend to really rely on your credit score when it comes to determining whether or not they can take the risk on giving you money. People with an unproven track record or bad credit can be considered “high risk” so lenders don’t want to touch them with a ten foot pole.
Strange Spending Habits
If you’re trying to apply for a loan from your bank, it only makes sense that they will look through your statement to try and get a feel for what kind of a spender you are. You might have difficulty securing a loan if your bank notices you tend towards making large, impulsive purchases or have spending habits typical of gamblers or others who don’t always repay their loans on time. Essentially, your financial habits give huge insights into what kind of a person you are and those who pay off their loans on time tend to have similar financial habits, the same applies to people who don’t. Your spending habits are part of your financial identity and this can factor in to whether or not you get approved for a loan.
Conclusion
Choosing to get a loan is a necessary part of the lives of many people. Unfortunately, so is getting denied for a loan. If you’re worried you might get denied for your loan or you are constantly getting denied, consider the above tips. If you credit score isn’t very good and you absolutely need a loan, you might have to go with an alternative lender but note that their terms might not be very favorable. Choosing to improve your credit score is the best way to help yourself build for the future as you’ll probably have to secure a mortgage loan at some point in your life.
