Debt consolidation is undeniably a one powerful tool that can help you reduce your interest payments and manage multiple debts without any hassle. This debt relief strategy is specifically for those under multiple high interest debts. Multiple debts mean multiple interests and monthly payments. Not only is it a hassle to keep track of your monthly dues but it increases the overall cost of your debt too. Debt consolidation here can work wonders for you because this way you’ll be rolling all of your debts into a single debt with a single interest.
Those considering this route might be wondering which banks offer debt consolidation loans with the best terms? For this, all you need is some research and comparison between different lenders to find the best option.
You being here tells that your bank has declined your debt consolidation loan application and yes it can be a little discouraging but know that it’s not the end of the road. In fact, take it as an opportunity to reassess your financial situation and work on all the other alternatives that’ll lead you towards financial recovery.
Reasons Why Your Debt Consolidation Loan Was Denied
Before finding alternate routes to improve your situation, it’s important to understand the root cause behind the loan rejection. Here are some common reasons;
1-A Poor Credit Score
Traditional banks require a fair to excellent credit score to grant you a debt consolidation loan. People with lower scores often struggle because they are considered high risk borrowers and banks usually disqualify them immediately.
2-A High DTI (Debt To Income Ratio)
A high DTI score means that most of your income goes into your monthly debt repayments. It also indicates that you won’t be able to manage any new loan even if you simply want a loan to consolidate debt.
3-Unstable Or Insufficient Income
Lenders always pick people with stable and sufficient income. If you don’t have a proper job or if you are self-employed, lenders consider this a red flag as they think you won’t be able to pay off their loan.
4-Any Recent Negative Credit Events
Late payments, foreclosure and bankruptcy, all such events (especially the recent ones) can put a really negative impact on your lender and it can affect your approval odds as well.
5-A Huge Loan Amount
Requesting too much money is never a good idea and it can scare off your lenders especially if the amount exceeds your credit or your monthly income. It’s always important to request a reasonable amount of loan to improve your chances of approval.
Steps To Take After Debt Consolidation Loan Denial
Loan denial comes with a lot of disappointment but it’s never the end of the road and there’s a lot you can do to try your luck again;
Request The Bank For A Reason: Lenders are bound by the law to provide a reason for denying your loan. If your bank rejects your loan application, ask them to provide a reason and then review it carefully.
Review Your Credit Report: Sometimes, some inaccuracies and errors are weighing down your credit score. If your bank is denying you a debt consolidation loan due to your credit score then it’s best to visit AnnualCreditReport.com and get a free credit report. Look for errors and areas that you need to work on (late payments). Dispute the inaccuracies with the credit union and get them fixed immediately.
Work On Your Financial Metrics: You first need to figure out all the aspects that led to denial in the first place. Do all you can to improve your loan approval odds, including;
- Pay down all of your existing credit card balances
- Ensure timely payments
- Dispute the errors and inaccuracies on your credit report
- Do not apply for any other loan for a short time
Financial Planning And Budgeting: Budgeting paves you the road to complete financial freedom. You need a properly structured repayment strategy and this is where budgeting comes in handy. Devise a plan, take complete control of your finances and then try applying for the loan again.
Immediate Actions To Take After Loan Rejection
Make Changes To Your Loan Application
If you were really close to qualifying for the loan but got rejected then ask your lender if there are any certain measures you can take to improve your chances. It can be anything from reducing the amount of loan to opting for a longer repayment term.
Opt For Credit Counseling
If you aren’t able to negotiate with your creditors or if managing the debt is becoming a huge problem for you then try credit counseling. There are multiple non-profit credit counseling agencies out there and they can help devise a DMP (Debt Management Plan) for you.
Don’t Rush When Borrowing Money
If your bank isn’t approving your loan, don’t give up and especially don’t rush into high interest loans or pay-day loans as they can worsen your financial situation.
The Best Debt Consolidation Alternative Options
If a traditional bank isn’t approving your loan, there are plenty of other options you can try;
1-Opt For Online Lenders
Online lenders and peer to peer platforms like Avant and LendingClub can be your best bet when your bank doesn’t approve your debt consolidation loan. Just look for reliable lenders who specialize in bad credit loans with less stringent requirements.
2-Credit Union Loans
Most of the credit unions out there have more flexible lending criteria than traditional banks. You just have to do proper research and find the one that suits you the best.
3-Debt Management Plans
Look for non profit credit counseling agencies. They don’t offer any consolidation loans but yes, if you find yourself lost and struggling financially then opting for a credit counseling agency is the right thing to do. The agency will devise a Debt Management Plan for you that involves negotiating lower interests with your creditors and consolidating your debts without requiring any new loans.
4-Debt Settlement
If you are going through a serious financial hardship then debt settlement is another great option. You can hire a debt settlement company that’ll negotiate with your creditor on your behalf and help you settle your debt for less than what you owe. This obviously does come with a few downsides like it’ll hurt your credit and you might have to face tax implications as well.
5-Home Equity Loans
If you have a home with equity, it’s best to tap into it especially during tough financial situations. However, this does come with its own risks, especially the fact that if you aren’t able to repay your debt, you might end up losing your home.
Final Verdict
It’s very normal for people to feel frustrated when a bank rejects their debt consolidation loan but again, it’s not the end of the tunnel. You can use it instead as a wake up call to evaluate and reassess your financial picture, work on your creditworthiness and explore other debt relief strategies.
Whether you opt for credit counseling, debt settlement or an online lender, know that it’s always possible to take back control of your finances. It’s no magic and it won’t happen overnight. In fact, it’ll take time, effort and consistency for you to see the results.
FAQs
Q1. Will A Loan Denial Hurt My Credit Score?
No, a single loan denial won’t have any affect on your credit score. However, if a hard inquiry has been made during the application process then it’ll drop your credit score by a few points temporarily.
Q2. Is It Possible To Re-Apply For A Debt Consolidation Loan?
Yes, it’s possible to re-apply for a debt consolidation loan but you shouldn’t do that until you know the main reason behind the rejection. For example, if the bank denied your loan due to poor credit score then it’s important to improve it first and then apply again. Reapplying too soon can hurt your credit score even more, especially due to multiple hard inquiries.
Q3. Is Debt Settlement A Good Alternative?
As compared to debt consolidation, debt settlement isn’t really a good alternative. In fact, it should be your last resort because not only will it hurt your credit but it’ll also stay on your credit report for 7 years. Moreover, you might as well have to pay tax on the forgiven amount of your creditor. You should only use this option after consulting your financial counselor.
A loan denial from your bank doesn’t mean that you can’t get out of debt any other way. Want to explore some other effective debt relief options? Try Mountains Debt Relief for the best counseling to secure your financial health.