You should know the reasons for your refusal and what you can do to solve bad credit loans. If the loan is denied, applicants often cannot understand why.
What is to know about bad credit loans?
For example, the granting of installment loans has nothing to do with luck. If the bank rejects the loan, it has good reasons for doing so. For the most part, these are that the applicant cannot afford sufficient collateral for the loan. But also a poor payment history in the past forces the bank to reject the loan. The conditions for obtaining an installment loan are set out in the terms and conditions of each bank. However, legal requirements also ensure that only borrowers receive a loan that they can serve. Thus, on the one hand, consumers should be protected from potential debt and on the other hand, the bank should be protected against possible loan losses.
But what are the concrete reasons why a loan is rejected?
First of all, there is not one answer to this question, as each bank can choose its own lending within legal frameworks. In principle, there are only two reasons why your loan was declined, your credit rating or your age. Both reasons are quick and easy but partly consist of complex relationships.
Ground for refusal: creditworthiness
The term credit rating is the summary of the creditworthiness of a borrower. The credit rating is determined by various factors that allow banks and savings banks to recognize how likely it is that the borrower can actually pay his installments. The worse your credit rating is from a bank, the more likely it is that your loan will be declined.
The employment relationship
Employees and civil servants have the best chance of getting an installment loan because their income is regular and most secure. In these cases, the bank can, therefore, assume that an installment payment is hardly a problem for this target group. It looks different if you have a permanent job but have started it recently so you are still in the probationary period. Since much can happen during the probationary period and there is only two weeks’ notice, employees in the probationary period are not particularly favorable borrowers from the bank’s point of view. But that does not mean that your loan will be rejected. It probably depends more on how high the credit you need.
Self-employed and freelancers
Much worse cards have people with irregular income. A loan for self-employed and freelancers forgive banks only after a very precise examination. Self-employed and freelancers need a loan to keep track of their earnings over the past three years. Only in this way the bank can make a concrete overview of the income situation. But self-employment alone is no reason why your loan was or should be declined. Only start-ups have virtually no chance of a loan.
The amount of income
Even students in need of money are doubly poor. Normal banks rarely give students a loan. Students are probably dependent on the support of their parents when it comes to a classic installment loan. Students can apply for special student loans. Another aspect that can be crucial to your loan being or eventually being declined is the amount of your income. The loan amount you need should not exceed your financial resources. The bank does not want you or yourself to over-credit you and scrape up every penny over the years to pay the installments.
A very common reason why a loan is denied is insufficient collateral for the claimant. For example, if you have only a fixed-term contract or are still in the probationary period as described above, the bank’s risk of unemployment and the associated loss of earnings are usually too high. The bank needs a guarantee that you will be able to pay your installments even in more complicated circumstances. However, depending on the amount of the loan you can bring in other collateral than your employment. A property or term life insurance accepts banks as collateral. Also be on the safe side and the bank if there is a second borrower with a regular income. Even a loan with a guarantor increases your credit rating, but in the present time is rather the exception.
Conclusion: Creditworthiness at a glance
As you can see, your credit rating is influenced by many factors. If the bank’s overall credit rating is low, it is likely that your credit will be declined. However, as already mentioned in detail, each bank has different guidelines for granting loans and it always depends on the individual case. Perhaps your credit was rejected at Bank A but that does not mean that Banks B and C do.