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Why you're not able to get a loan and what you can do about it!

by , 28 June 2013

Whether it's for a new home or a start of a new business, one day you'll probably need a loan. The thing is, people are struggling to get loans nowadays and I often hear the common words: “My bank won't grant me a loan to buy some property to live or invest in” or “No one will give me money to invest in a new business.” And with the advent of the unsecured lending scenario that's hit our nation, banks are becoming even less willing to make the smallest of loans to our citizens...

For these reasons I took a long hard look at the reasons for the banks refusal to give out loans. I wanted to find out what factors will grant you credit favour and what you can do about it if you haven’t made the cut!
 
Here’s what impacts your credit:

#1: Too much debt on your hands
 
A bank or other creditor may not give you a loan if you already owe too much on other debts.
 
Just think about it, would you be willing loan someone money if you know they have to pay boat loads of money to other people? They may give the other creditors priority leaving you with a defaulted loan.
 
So the bank picks their clients carefully because of this. That’s why it’s so important you hammer away at your existing debts before diving into a new loan.

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#2: Your payment history can show you’re worthy
 
I know of someone who made payments for his loan… But the problem was, each month he paid a different amount…
 
Some months he missed, some he only partly paid and in others he paid it in full.
 
There’s something I like to call debt behaviour. 
 
This is an important factor for anyone wanting to get a loan. If you’re not paying your loan expense in a consistent manner, you’re considered to be a higher risk than others that pay habitually.
 
This means it’ll affect your credit score and thus affect if you can get a loan as well as the size of the loan.
 
So what you want to do is make consistent payments and ensure they’re on time and at least the minimum payment amount. It’s fine if you can’t pay more than the minimum amount required for the interest… However, I advise that if you can, you should try pay a little more to make your payment history squeaky clean.
 
It’s also worth mentioning that the length of your payment history is important. The longer it is, the greater it’ll look for your record. So you should consider paying off your current debts until you’ve racked up a history which will prove your good faith.
 
#3: The strength of your assets
 
A creditor is more willing to give you a loan, or rather, a better rate on your loan if you have sufficient assets. 
 
This is because if you default on your loan, they know they should get something out of it. For instance, you could take out a loan for a second property and put down your other property as a sort of insurance.
 
What this means is, if you default on the loan, the bank will be able to seize the property you put down.
 
This may sound risky, but if you have a sound business plan or a relatively safe job you’ll be in a better position.
 
Remember, the asset you put down doesn’t have to be something like another property. If you put down a significant sum of money down right at the beginning of the loan, the bank will be more inclined to knock points of the interest you’ll pay.
 


Why you're not able to get a loan and what you can do about it!
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