Possible Reasons Why Your Personal Loan Application Got Denied

This article originally appeared on Payment1.com

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When your personal loan application gets denied, it can be disappointing. Most people are also puzzled. Even people with strong credit scores can get denied, and it makes them wonder why. Below are a few common reasons why banks deny personal loan applications so the next time you apply for one, you’ll know what and what not to do.

 

  1.  Bad credit score

 

Let’s get the most obvious reason out of the way. When you have a bad credit score, lenders are most likely to deny your personal loan applications. Your credit score is what tells banks the likelihood of you paying them back for the loan. If your track record is not very good when it comes to paying what you owe, chances are your bank will be resistant to granting you loans.

 

  1. The loan amount is too high

 

Lenders will take into account your capacity to pay back when you apply for a loan. When you fill out that loan application form and put in too high of an amount in the “desired loan amount” field, banks will most likely deny your application. To avoid this mistake, use an online loan calculator. Loan calculators can tell you how much you can borrow given your current income.

 

  1.       Unstable employment record

 

Because banks consider your ability to pay the loan off in the long run, they will be looking at your employment record. So if you have an unstable employment record or worse, no employment at all, banks will be hesitant to grant your loan application. Lenders will require certain employment tenure or length of service, which is why banks typically require you to submit a certificate of employment.

 

  1.  Insufficient income

 

When you don’t make enough to apply for a loan, you will most likely not get approved. You need to be able to make the monthly loan repayments, and If you do not make enough money to pay them and at the same time address your basic needs as well, lenders will not grant you a loan. This is because you are most likely to use your income for your basic needs than to pay off the loan.

 

  1.  You have too much debt

 

When you apply for a personal loan, your bank will do a background check to see if you have any outstanding loans. This is so they are sure that you have the capacity to pay. If you meet the minimum income requirement and have a good credit score but have several outstanding loans, they will most likely be hesitant to grant you another one. The more loans you have, the less capacity you have to pay back an additional loan.

 

  1.  How you fill out the loan application

 

If you have any mistakes or inconsistencies in your loan application, lenders might not grant you your personal loan. Your data needs to be complete, correct, and consistent. Lying on your application will get you denial and could possibly land you on your bank’s bad side.

 

Consider the list above the next time you apply for a personal loan. Make sure you fill out the application completely and honestly, have a good credit score and enough income to make the payments, and make sure you’ve been employed a while.

Can Debt Be Used to Build Wealth? Let’s Weigh In

This article was originally published by Uncapped Mortgage

Generally, people think of debt as something to avoid. Debt usually means “bad” and no debt means you are better off financially. So the idea of using debt to build wealth can seem a bit dubious. Can you really build wealth using debt?

 

In order to answer this question, we first need to know that there are two kinds of debt. There is good debt and bad debt. And though the thought of debt being “good” seems counter-intuitive, the fact remains that some debt is actually good.

 

Good debt is a debt that will increase your finances over time. So something like a small business loan is good debt because you use the money you borrowed to build up your business, thus, bulking up your finances in the long run. Good debt also has a smaller interest. So while you are expanding your business with your small business loan, you aren’t paying an exorbitant amount in interests. This type of debt also allows you ample time to pay back your debt.

Bad debt is the exact opposite. This kind of debt has astonishingly high-interest rates and usually involves some form of collateral. There is also a very short turnaround time for you to pay your debt, plus interest, back. Some examples of bad debt are credit card debts, car title loans, and payday loans. A loan of $100 will have you paying back nearly the same amount in interests alone. Bad debt will sink you financially faster than a boat riddled with holes.

 

So now that you know the two types of debt, you can probably guess which one can be used to build wealth. The question now is “how”.

 

A good way is the example stated above. Use debt to expand your business. If you do not have a business, use debt to invest. It could be in property or in various investment funds. Whatever you decide to invest in, it is important to know your risk tolerance and how much you are willing to invest.

 

The principle of leverage can help you out as well. Say for example you are investing 100 dollars of your own with an expected return rate of 10%. This will earn you a return of $10. If you borrowed money with an interest rate of less than 10%, you can add to your initial $100 investment and still earn from it despite having to pay off the debt you used to invest. You can diversify your financial portfolio using this strategy as well; borrow to invest in different institutions and different kinds of investments.

 

There are a few to consider when using debt to invest. Think of your tolerance for debt. Can you realistically pay off your monthly payments? Can you pay off that debt within the time frame or do you need more time? Consider your cash flow as well. You need to make sure that you have enough income to pay off your debt.

 

So the answer to the question can debt be used to build wealth is yes, you can. You just need to choose the right kind of debt, invest in the right things, and keep in mind your debt tolerance.