If you have applied for a loan and been declined, you know how frustrating it can be. Not only you do not get the loan at a time to fulfill your requirement, for example before the finance clause expires in your contract of sale, but it will also cause a great deal of mental stress.
While there is no guarantee from any lender that your loan application will be approved, an understanding of the reasons why a lender might decline a loan application could help you to improve your chances of approval.
We have compiled and discussed the top five reasons why your loan might be declined in this article.
Poor Credit Score:
Most lenders use your credit score as a key factor when deciding whether or not to approve a loan. If your credit score is lower than the lender’s required minimum, your loan application is likely to be declined. To improve your chances of getting approved, make sure to pay all your bills on time and keep your credit score high.
Your income is another important factor. If your income is inconsistent, the lender will not consider your application favorably. If the majority of your income entails overtime or commission or bonus, the lenders will want a minimum of 3 months’ history. If your income is from a business, the lenders will want to see the business profit for the last two years.
Unstable Employment History:
Lenders like to see a steady employment history since it indicates that it is most likely that you have stable employment to repay your loan and will not run into financial difficulties after the loan is approved. If you have recently switched jobs or have had several gaps in your employment, lenders may not be comfortable with your home loan application.
Lenders questions when you have multiple others loans, such as credit cards, personal loans, and “buy now pay later” facilities. The other loans, specifically lifestyle loans, could substantially bring down your borrowing capacity. To improve the success of the loan application, consider paying off all possible loans, close down or reduce the limit of your credit cards, and refrain from entering into payment plans before a loan application.
The purpose of the loan is an important factor that lenders would consider when evaluating your application. If the loan purpose is not in line with the lender’s policy, the lender may look at the application negatively. for example, apply for a cash out of $ 250,000 without evidence.
It is important to provide a clear explanation of why you need the loan and how you plan to use it. In addition, you may need to check whether your purpose is in line with the lender’s policy. For example, home loan proceeds should not be used for business purposes as per some lenders’ home loan policies.
Once you have understood the common reasons why your loan application might get declined, you can work on improving the points identified in your application. You can also reach out to an expert Mortgage Broker specializing in the residential and commercial workspace, such as Sally Pietersz at Rands Financial Services, and optimize the success of your loan application.
Call us at 0434391331 or leave a message at https://www.randsfinancialservices.com.au/contact-us/ and we will be in touch.