Debt consolidation loans are cheap, reliable, don’t affect your credit score, and hardly ever require security for the loan to be approved.
If you are in business and experiencing financial trouble, you will find that a debt consolidation loan is just what you need. The promise of paying less than you are already paying monthly for all your accumulated loans is appealing and you will be on your way to getting a reputable debt consolidation loan. With such excitement, you are bound to get frustrated when your application is declined. Before casting blame on the person who recommended consolidation, note that it could be your fault as well.
Before submitting the application, beware of the following common reasons for debt consolidation loan declinations:
- Lack of security
Debt consolidation loans are considered unsecured personal loans. Even so, when you have a backlog of past unpaid debts, no financial institution will be willing to extend you the loan. It is hard for a financial institution to trust you with more money when their records show that you have difficulties managing your past debts.
- Insufficient income to qualify for the loan
A debt consolidation loan gets approved once the financial provider ascertains that your income is sufficient for repayments. When your business’ financial books show that you are incapable of repaying your debts with your current total income, your debt loan application will be rejected.
You should also keep in mind the fact that the debt consolidation loan repayment plan costs more monthly and paying the monthly minimum isn’t an option. If you can’t pay than the monthly minimum, your loan application will be rejected.
- Credit score and credit report problems
Regardless of what you may have heard about debt consolidation loans, your credit score is important for the loan to be approved. Top debt consolidation companies will go through your credit history to determine if your payment capacity can be trusted. If you have many late repayments or a high amount in owed balances, then your credit score suffers. This results in either declination or very high interest rates which are often unaffordable.
- Thin credit file or history
Building good credit is pertinent but is often considered a catch 22. Besides having to build your credit score for the loan application to be approved, you also need to make your payments on other loans or forms of debts for your score to have good readings. When this information is lacking, the lenders have a problem trusting you.
As a result, they will have to give you an option of a secured debt consolidation loan or you will be extended the debt consolidation loan as a high-risk borrower. Unfortunately, in most cases, the loan application is declined in totality.
Before applying for a debt consolidation loan, you should always get your credit history report to determine if the values listed on the documents are accurate. You will also need that information to guide you on improving your score. You won’t know what could cut short your next business loan application if you don’t get the right information on your credit score and previous repayments.