When Your Loan Application is Denied

You’ve worked hard to put together your loan application and you’ve found the perfect lender from which to obtain that loan. The interest rate is just right, they have a great reputation and you really liked the loan officer – he seemed to understand your needs.

Two weeks later, after checking the mail, you find that red envelope that contains the worst word in the English language: Denied! You can’t believe that you aren’t going to get your loan, and you assume that this is the end of the road for you. If this financial institution won’t approve your loan, who will?

This is the mentality of most consumers when they receive their first denial on a loan application. The common assumption is that all lenders are created equal, which simply isn’t true.

There are scores of factors that make up the decisioning process of lenders nationwide, and each one is different. Each financial institution or lender is able to set up a balance of equations specific to how they want to approve their customers. Some weigh more heavily toward delinquent payment history, while others will consider the loan application in detail. Whatever the case, you shouldn’t stop at your first try.

The first thing to do is to go back through your paperwork and look at loan quotes from other lending companies. Which ones did you like the most? Rate them in order of best to worst, and keep at least five in consideration.

Once you’ve chosen five-to-seven loans quotes, contact the lenders again to inquire about any changes. Will the interest rates still remain the same? What about grace periods? And is the duration of the loan still an acceptable option? Some lending companies change their policies from week-to-week, depending on the economy and their present business. In fact, you might discover that you can get a better loan quote than the original one!

You should also make sure that they are still accepting applications and that they are still interested in doing business with you. If not, you can go ahead and cross them off your list.

The best way to expedite the loan application process is to inquire about the company’s policy on pre-approval. A pre-approved application means that the company has already run a credit check. Their findings will determine whether or not they will by likely to approve your application. If your credit history is not in line with their needs, they can tell you right off the bat and save you a lot of time.

When you are pre-approved, you will still have to go through the application process, but at least you won’t have to wait in trepidation for that little red letter that says, “Denied!”

It is important, however, that you not request pre-approval from more than two or three lending companies at a time. Every time your credit history is run by a third party it shows up on your credit history report. Too many applications for loans or lines of credit can begin to drop your credit rating, making it more difficult to obtain them in the future.

If loan applications (or pre-approvals) are consistently denied, it is time to reevaluate. Your credit report is one thing to obtain to make sure that it is correct and there are no inaccurate delinquencies or collections. Next, check your credit score against the requirements of lenders. If they don’t match, then this is a good reason why you’ve been denied.

Consult with a credit counselor to help narrow down your options, including collateral and other factors that might help to sway lenders. Many financial institutions specialize in specific types of loans, such as auto loans and mortgages, which might help you to focus your search.

Many lenders also have a secondary review for loans, which you can request if you feel that the decision was made unfairly or without sufficient information. The second review of your loan will result in an additional credit check as well as a more in-depth investigation of your finances. Be prepared to submit various forms and data including bank statements, tax returns and other financial information.

Finally, lenders are required to inform you as to why your application as been denied within thirty days. Consult with the lender at length about your situation, and ask which factors can be improved to gain approval. Often, loan officers will be more than happy to talk with you and to point you in the right direction for future approval