Often we are faced with situations when our own income and savings are not enough for some important purchases, and we have to contact banking organizations for a loan. If you are applying to the bank for the first time, or if you have ever been declined for a loan before, then it will be useful to find out how you can increase your chances of getting approved for a loan.
Why banks can reject a loan application and how to avoid it
Every year, thousands of individuals and legal entities apply for loans to financial and credit institutions. According to statistics, banks now approve fewer loans.
There are several reasons why banks reject loan applications more often this year:
- bad credit history;
- lack of citizenship or permanent registration;
- no official employment;
- small wages;
- the presence of an outstanding loan in the same or in another bank;
- criminal records in the past, especially in cases for fraud;
- the borrower has a narcological or neuropsychiatric dispensary;
- the presence of open or closed cases to collect any debts from the borrower by bailiffs;
- the conducted bankruptcy procedure.
That is why banks began to treat the process of issuing loans much more scrupulous.
Now the borrower requirements from banks have increased significantly. And now many clients do not pass the scoring test, which is why they are declined for a loan.
So, getting money from the bank takes a lot of effort. It is about how to increase your chances of loan approval in modern realities and will be discussed further!
7 ways to boost your loan approval chances
What can you do to get a positive response to your loan application?
1. Competent preparation before going to the bank
What does this mean? First of all, you need to collect all the necessary documents that will confirm your solvency. This will not only help you process your application much faster.
These documents include:
- SSN, ITIN;
- certificate of employment;
- proof of address;
- bank savings;
- income tax returns;
- financial statements;
- property documents;
- certificate of Net Worth.
If necessary, you may provide additional documents when filling out an application form.
2. Get an additional source of income
This can be a big advantage. However, it still needs to be confirmed. What proof can you provide? For example, a certificate from an additional place of work, extracts from personal accounts, certification of dividend receipt, and so on.
3. Serach for guarantors
Even if the bank does not require a potential borrower to provide guarantors as a mandatory item for considering a loan application, they (guarantors) will be an undeniable advantage in your business.
But do not forget to warn the guarantors that they will act as guarantors so that you have no controversial situations and conflicts in the future. You need to get their formal consent.
4. Provide collateral
The same goes for collateral. Even if the loan agreement terms do not require collateral, the willingness to provide it will confirm your serious intentions.
By the way, not only money can act as collateral but also:
- real estate;
- securities and so on.
In a word, everything that carries at least some real value and can be subsequently realized.
5. Improve your credit history
We can say that this is one of the decisive indicators that are guided by bank employees when making a loan decision. What is credit history? Read in this article below.
6. Adequate behavior, neat appearance, good impression
Often, bank clients who apply in person do not pay any attention to their behavior and appearance. And this is a big mistake. After all, bank employees also pay attention to your appearance, competent speech, correct filling of applications, etc. All this can form a psychological portrait of a person.
For example, a friendly and polite person in a suit and well-combed has a much higher chance of getting accepted for a loan than a person with an awkward and sloppy appearance who uses foul language.
7. Information for those who apply for a loan for the first time
Many people who have not taken loans before mistakenly believe that they will definitely get a bank loan. Rather the opposite – banks will not be able to check your credit history and find out whether you can be trusted as a borrower or not.
When you contact the bank for the first time, you cannot immediately request a large loan. It would be wiser to first issue a credit card with a small limit, use it for several months to build a good credit history. You can also get several payday loans from microfinance institutions, one by one, and repay them in a timely manner. This will also have a positive effect on your credit score.
What to do if your credit history is bad
In this case, almost all banking organizations will reject your loan application, especially if you apply for a mortgage or car loan. Even if all delays and fines have already been closed, information about them will be stored in the credit bureau for 6 years. Be sure the bank will contact these bureaus to check their potential client.
What can you do? You need to improve your credit history, there is only one way to do this – take out easy-to-get loans and repay them successfully without delays. Each new positive debt repayment will have a good impact on your reputation.
If someone offers you to fix your credit history for money, you can be sure that they are scammers. No one has the right to correct or delete anything from the credit bureau database. Even the employees of this institution will not be able to do this.
As soon as you improve your credit history, you will increase your chances of being accepted for large loans, including car loans, business loans and mortages.
We hope the above information will help you get a loan during this difficult time and will warn against possible mistakes that people often make.