Debt consolidation is the process of combining all your liabilities, consumer debts, and unsecured debts and pay them off in a single monthly payment. Multiple debts are combined into one single, large debt. Debt consolidation can be done with a debt consolidation loan. This type of loan generally has favourable payoff terms like lower interest rates or lower monthly payments.
Check the eligibility criteria for debt consolidation loan instant approval before you apply. In this article, we will learn about 5 reasons why your request for a debt consolidation loan can be denied.
5 Reasons Why Debt Consolidation Loan Can Be Denied
1. Poor Credit Report and Credit Score
Since debt consolidation loan is a type of loan, your credit score will matter. The lender will consider your credit history and credit score to determine if you are a good candidate or not.
Poor credit history may result in rejection of the debt consolidation loan. Improve your credit score by making timely payments.
2. Insufficient Income
The debt consolidation loan can be rejected due to your income status. You need to have sufficient income after managing your daily costs, unexpected expenses, and loan payments.
If you do not have enough income after paying for all your obligations, the debt consolidation loan won’t be approved. If you can show proof of a steady stream of income, you can qualify for instant debt consolidation loans.
3. Not Enough Credit History
If you have not been using credit in your name for a long time, it implies that you do not have much experience in handling credit. The lenders will be wary of giving you the loan as they won’t be sure if you can handle the loan payments properly.
A good and long credit history shows that you are responsible with paying the dues. Without a proper credit history, your loan request may be rejected. Even if you get the loan, the interest rates will be very high, which might make debt consolidation loan a bad idea.
4. Too Much Debt In Your Name
Most financial institutions will let you borrow up to 40% of your gross annual income for a debt consolidation loan. When you apply for the loan, they will add the consolidation loan to the existing debt payments. These include existing loans, mortgages, credit cards or line of credit. If these exceed 40%, the debt consolidation loan may be rejected.
5. Wrong, Incomplete Or False Documents
You need to enter the payment information data and history reports correctly. If you submit the wrong documents, the loan will be rejected. Providing false information will also lead to loan rejection. Hire a broker to fill out your paperwork if you are not confident of doing it on your own.
Debt consolidation loan has its pros and cons, so consider them before you go that route. Remember that your debts will not disappear because of a debt consolidation loan. You have to be disciplined to pay off the debt consolidation loan within the stipulated time period.
Author Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India's first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life's mission to help and educate people on various financial topics, so email him your questions at shiv@moneytap.com.
