A loan seems to be a better option when your financial condition wobbles, but a majority of borrowers fail to borrow money because of impaired credit standing. When an emergency catches you on the hop, you need funds as soon as possible.
In this case, you rush into taking out guaranteed acceptance loans. It is not so easy to get a lender to sign off on your loan application. There is no such thing like 100% guaranteed approval. A lender will approve your application after assessing your repayment capacity.
Even though your credit score is bad, the lender will try to figure out whether you will be able to pay off the debt or not. Loans with guaranteed approval aim at bad credit borrowers so that you can fund your unforeseen expenses, but it does not mean that you are not likely to be turned down. Short-term loans require neither guarantor nor collateral, yet they are difficult to have approved for most of the borrowers.
Following are some circumstances when your application is cast aside. If you manage to lower down the rejection rate, the chances of acceptances go high.
Lack of steady source of income
A lender will look over your income statement to decide the disbursal limit. One of the biggest reasons for rejection of a small loan is you do not have a steady source of income. It is mandatory that you have a regular source of income to ensure that you will pay off the debt on time.
If you rely on a part-time job or have a freelance job, it shows uncertainty about your financial circumstances. Your lender will hesitate to give acceptance to your application. Some direct lenders may consider you as a borrower with very high default risk if you are unemployed and living on benefits.
Very poor credit rating
Subprime borrowers are never discouraged from applying for loans. Since it is impossible for you to borrow money with a bank because of traditional lending criteria, direct lenders try to help you tide over during emergency. Though these loans mainly target borrowers with bad credit, it does not mean that the lender cannot turn you down.
When your credit rating is bad, you should have higher monthly income to ensure that you will make repayments on time. If your credit rating is very poor, below 560, according to Experian, most of the lenders will not entertain your application. Make sure that your credit score is not extremely bad if you want the lender to approve your loan application without any delay and hindrances.
The chances of having a lender approve your application abate if you currently owe the debt. A lender will look over your repayment capacity and if you have already been under the debt pressure, they may doubt on your affordability. Since your credit score is bad, you should be careful with your borrowing. Try to take out a loan only when you do not have any other loan.
Multiple loan inquiries
Having multiple loan inquiries on your credit report may call your creditworthiness into question. This can call for a doubt that you are extremely desperate to have a loan approved as soon as possible. You probably rely on debts for your recurring expenses. Further, multiple inquiries leave footprints on your credit file and as a result your credit score will plummet. Your score is likely to fall into the category of very poor credit rating.
You do not meet annual income criteria
Direct lenders may set high limits of annual income in case of loans with bad credit. In absence of guarantor and collateral, the lender requires you to have a solid income source. This ensures that you will pay back the debt on time. Make sure that you have considered your affordability before applying for the loan. You should create a budget to estimate your net worth. This will help you get a clear insight into your affordability.
The bottom line
If you want to have a loan quickly approved by the lender, you should focus on methods to lower down rejection. Since you can get a loan despite bad credit history, it does not mean that you will not make efforts to improve it. Try to pay off your debts, utility expenses on time and avoid using credit cards for impulsive buys. The lower the credit utilisation ratio, the better it is.