After you’ve applied for a loan, you may be told that your loan application has been rejected. But what does this mean? Sure, it can be annoying when you must start the whole process all over again, but there’s often a straightforward reason for rejection. To avoid rejection in the future and receive the best possible loan terms, take some time to explore the following reasons why a bank may reject your loan application and how they can be addressed.
Insufficient Debt-to-Income Ratio
Different lending institutions have different debt-to-income ratios in place to ensure that the applicant can afford the loan. When applying for a loan, some banks will check your debt-to-income ratio and reject your loan application if it appears that you are unable to afford the monthly installments on loan. For example, if you have a large outstanding credit card debt, they may also want to see proof of this when performing their credit check on you.
Inconsistent Cashflow
If you don’t have a sufficient income or your income is inconsistent, your loan application may get rejected. The lending institution will often require you to provide information on your income, how much money you make each month, and how long your employment has been with the company.
Credit check agencies sometimes provide the bank with information on potential borrowers through their credit history. If they find that you are not in regular employment, they may decide that they do not feel comfortable lending you money at this time.
You have no guarantee of collateral
If you don’t provide the lending institution with sufficient collateral, they may reject your loan application. In such situations, they will want to ensure that they are sufficiently protected if you’re unable to repay your loan request. Options may include offering them a mortgage on your home or providing them with a vehicle or property as security against the loan if you cannot pay it back.
You have a poor credit history
If you have a poor credit history, this may be why your loan application gets rejected. Again, banks will perform a “credit check” on each potential borrower to gauge their ability to repay the loan. If they find that you have defaulted on previous loans or financial agreements with other banks, this does not suggest that you’re likely to be able to repay your current request for a loan.
Previously rejected loan application
If you recently applied for a loan and were rejected, then this may be the reason why your new application gets rejected. For example, suppose you have previously defaulted on a loan for another property and were told that you must clear the debt before applying for another loan. In that case, a bank may reject your new application.
If your loan application was rejected by a bank, we might be able to help you. Insula Capital Group is a private mortgage lender that offers hard money construction loans, flip loan financing, and other private loans. Contact us today to learn more about our financing services.