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Was Your Loan Denied? Here’s What To Do

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Was Your Loan Denied? Here’s What To Do

It can be a painful experience when a lender rejects your loan application—whether it’s for a mortgage, student loan or personal loan. Although you might not know what to do, you can take steps to increase your approval odds for future applications. We will walk you through what you need to do after rejection and how you can secure financing after you’ve had a loan denied.

Here are three immediate steps you can take after a rejection.

1. Identify Why Your Loan Was Denied

Before you re-apply for a loan, take time to identify why your lender denied your application. It might be because you didn’t meet the lender’s debt-to-income (DTI) ratio and minimum credit score requirements, have negative items listed on your credit report or applied for too much money. If you can’t determine the reason on your own, contact the lender.

Under the Equal Credit Opportunity Act, you have the right to ask your lender why it rejected your application, as long as you ask within 60 days. After you request an explanation, the lender must provide you with a specific reason for your denial. You can use the information it gives you to help fix any issues.

2. Remove Errors or Negative Remarks From Your Credit Report

After you identify the reason for your denial, review your credit report. Due to the pandemic, you can get a free copy of your report—from all three credit bureaus: Experian, Equifax and TransUnion—each week until April 20, 2022, through AnnualCreditReport.com; prior to the pandemic, you could only receive one free report per bureau, per year.

If you have negative marks, such as late or delinquent accounts, this can hurt your loan eligibility. While you look over your credit report, confirm each account it lists belongs to you and is accurate.

You have a right to dispute inaccurate information shown on your credit report with all three credit bureaus. Although you can pay a credit repair company to dispute the negative items for you, you can do it yourself, too. There is no charge to dispute incomplete or inaccurate information. The Federal Trade Commission (FTC) provides sample letters for disputing errors on your credit report.

3. Improve Other Key Qualification Factors

In addition to removing errors or negative remarks from your credit report, you should consider improving two other key factors lenders consider when they review your application: your credit score and DTI.

Credit Score

Low credit scores can lead to loan application denials. Lenders use this score to assess how much risk you pose as a borrower. FICO is a common scoring model lenders use,, with scores ranging from 300 to 850. Applicants with good credit scores (at least 670) typically experience higher approval rates; applicants with lower scores may not qualify.

Debt-to-income Ratio

Lenders may also deny your loan application if your DTI ratio is too high. They look at this number to assess your ability to repay the new loan while handling your current debt load. Lenders typically prefer ratios of 36% or less; however, some may approve highly qualified applicants with a ratio up to 50%.

To calculate your DTI, the lender divides your current monthly debt burden by your monthly gross income. For example, if your current monthly debt load is $3,000 and your monthly gross income is $4,000, your DTI ratio would be 75% ($3000 / $4,000).

Short-term Strategies to Increase Approval Odds

Try these four short-term tactics to increase your approval odds if a lender denies your loan application.

1. Prequalify With Other Lenders

Since different lenders have different lending requirements, try prequalifying with other lenders. When you prequalify, the lender should outline what terms you will receive if your application is successful, including your loan amount and interest rate; there’s no impact on your credit score because lenders typically only run a soft credit check.

If you are unable to prequalify with a traditional bank or online lender, try submitting an application through a local credit union. These member-owned, not-for-profit institutions might be more willing to extend you a loan based on your complete financial picture, and not just your credit score.

2. Provide Collateral

Providing collateral—something of value that secures the loan—might improve your chances of qualifying for a loan; a loan that uses collateral is considered a secured loan. Some common examples of collateral include a cash deposit, car title or savings account. Since the lender can seize your collateral if you don’t repay your loan, it may be more willing to approve your loan.

3. Request a Lower Loan Amount

Some lenders might deny your loan because you’ve requested to borrow more money than you can afford to repay. If this is the case, ask the lender to approve you for a lower loan amount.

4. Increase Your Down Payment Amount

Another way to increase your approval odds is to use a larger down payment amount, which makes the loan less risky for the lender to take on. For example, if you’re applying for a mortgage, you might increase your chances of approval if you put down 20% of the home’s price instead of 10%. In addition, the lender might not require that you pay for mortgage insurance.

Long-term Strategies to Increase Approval Odds

If you don’t need cash immediately and want to decrease your chances of having a loan rejected in the distant future, consider these four strategies.

1. Build or Improve Credit

Although it might take some time, taking steps to build or improve your credit will help you meet lenders’ minimum credit score requirements. To do so, repay any current debts you may have on time, keep your credit utilization rate below 30% and remove any inaccurate information from your credit report.

2. Increase Income

While increasing your income is easier said than done, it may help you qualify for more loans. More income can result in a lower DTI ratio, which means you’re more likely to meet lenders’ minimum DTI requirement. To increase your income, consider picking up a lucrative side hustle or learn an in-demand skill to boost your earning potential.

3. Pay Down Debt

You can also improve your DTI if you pay down debt. Two of the most popular debt payoff methods are the debt snowball and debt avalanche methods. With the debt snowball method, you pay off your smallest debt first, while making minimum monthly payments toward the rest of your debt. The avalanche method is similar, but instead of paying your smallest debt off first, you pay your debt with the highest interest rate.

4. Increase Your Cash Reserves

Some lenders may require you to have a certain amount of cash reserves before approving your loan. To improve your chances of qualifying for a loan that has this requirement, create a long-term automatic savings plan to increase your cash reserves.

What Happens If My Loan Is Denied a Second Time?

If your loan is denied a second time, you’ll have to identify why it happened again. Ask the lender for an explanation why it denied you a loan.

Before you apply for another loan, review your credit report again to see if you can spot any errors. Check your credit score to see if it has improved. To increase your chances of approval, you might have to wait until you meet the lender’s requirements or choose another lender that better matches your financial situation.

Other Methods of Financing to Consider

If you don’t qualify for a loan, consider these other methods of financing.

Secured Credit Cards

A secured credit card requires a refundable security deposit when you apply, which serves as your credit limit. Like a traditional credit card, you borrow money on an as-needed basis. If you fail to repay your balance, however, the lender can seize your security deposit. This option could help you build your credit, making it easier to qualify for future loans.

Grants and Scholarships

If you need help financing your business, look for grant programs in your area. Check to see if your business is eligible for forgivable loans under the Paycheck Protection Program (PPP). Also, check with your local government to see if it has a small business grant fund.

If you need money for school but don’t qualify for a student loan, consider applying for grants and scholarships.

Family Loans

If you can find someone in your family who can loan you money, you can bypass traditional lending requirements. The loan agreement between you and the family member could be informal but should outline the terms. However, the downside to this option is that it could ruin your relationship with the family member if you can’t repay the loan.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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