Local Bank Denied Your Loan? What Next?
There's nothing fun about getting denied for a loan, especially when you have a true financial need. As hopeless as the
situation may seem, don't stop trying. There are things you can do to get a loan from somewhere else, maybe even the same bank
you first applied to.
Under the Equal Credit Opportunity Act, any lender that denies your application because of your credit must tell you, in writing, the specific reasons you were denied. If a credit report was used in making the decision, you also have the right to receive a free copy of that report.
Once you've received the lender's letter letting you know why you were denied, review it to make sure you understand the reasons you were denied. Don't hesitate to ask questions for clarification.
You have 60 days to order your free credit report (if one was used to make the lending decision). The lender's letter should include instructions for ordering this credit report. If, after reviewing your credit report, you discover the lender's decision was made because of errors on your report, write to the credit bureaus to have the errors corrected. Then, request that your updated credit report be sent to the lender for review (you can do this for free). Follow up with the lender to find out if your application can be reevaluated based on the updated information.
If your application was denied because of a negative credit history, you can take steps to improve your credit. For example, if you have past due accounts, bring them current for a better credit standing.
Your loan application could have been denied because you didn't meet the income requirements. In this case, try looking for a loan that has moderate income requirements or apply for a lower loan amount.
A high debt-to-income ratio can get your loan application denied. This is when you have a high level of debt relative to your income. Lenders look at this ratio to determine whether you can handle more debt. The higher your debt-to-income ratio, the lower your chances at getting approved for the loan, even if you have an excellent credit history. Pay down some of your debt before trying to apply again.
Another option is to have a co-signer with a better credit history and lower debt level apply with you. This might improve your chances to get the loan. Be careful when you use a co-signer because this person assumes the responsibility to take care of the loan if you are unable to make the payments.
Instead of going through the bank, consider having a realtor or car dealer look for a loan for you. They may know some lenders who would be willing to work with you. Make sure you explain your credit situation - that you've previously been turned down for a loan - so the realtor can go to the right lenders the first time around.
Consider going to a larger bank. You may or may not have better luck, but it's worth a try. Do your loan shopping within 30 days. The most recent credit scoring formulas won't penalize you for credit inquiries when you're shopping for mortgage and auto loans within a 30 day window.
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