Debt consolidation loans are turning to be the first stop people make when they find themselves deep in debt. As a solution to most debt problems, consolidation gives people the chance to relieve their financial stress by putting together their different loans into one loan and instead of repaying five or more debts monthly, they have one debt to repay monthly. Often, the interest rates are low and if you get a good plan, you will find yourself paying less monthly and eventually, you will save on quite a bit.
Unfortunately, not all debt consolidation applications are approved. The top reasons for decline of debt consolidation loans are listed below. They include:
- Debt repayment problems
Before the debt consolidation loan is approved, your credit history is evaluated. The financier checks your credit score and your credit report. If you have many cases of late debt repayments, your credit score will be low. If your score is really low, then you will be denied the loan. There are instances where you can get the loan as a high risk loan but in extremes, the request is declined.
- Insufficient income
Before applying for a debt consolidation loan, you are expected to calculate your income against all your debts and expenses. Since debt consolidation loans leave you with one debt to repay monthly, the repayments will be calculated against your income and if your income is unable to cover the monthly repayments, your request for a loan will be declined. Generally, your income is calculated and the projections are spread over the loan’s amortization period.
- Lack of security
A financial institution is in business and regardless of your financial status and the need for the loan you must provide collateral for the loan to be approved. To ensure that the financial institution gets back the money they lend you, they will need worthy collateral. With collateral, you will get a loan with lowered interest rates. Unsecured loans to persons with good credit history is higher. Bad credit and lack of collateral for the loan means that you will not get the loan request approved.
- Too much debt
When you already have too much debt, debt consolidation loans will not be approved. This is because the debt consolidation loan will not be enough to cover your debts and it is a whole risky thing to do.
Most of the time, banks and unions give loans up to a certain percentage of your income. If your loans are already at the mark, then you will not qualify for a debt consolidation loan.
- Scanty credit history details
Before a bank trusts you with a debt consolidation loan, they must have seen your credit history and be convinced that you are not a risk. A comprehensive credit history running back a few years is needed for the financial institution to be satisfied. When there is scanty information in your history, the requested debt consolidation loan will be declined.
In conclusion, it is a terrible thing to be in debt but lack a way out of it especially when you are willing to get off the debt train. Before applying for the loan, be sure that you qualify for the loan or find other alternatives.
Jackson Samuel is a credit management counselor. He is also a personal financial manager and has published many articles on debt consolidation loans. For more information on debt management, check out his blog.