Debt consolidation is a good solution if you have too many debts and are experiencing a financial crisis. It helps you put together all your loans into one account, which makes it cheaper and easier to manage. Not everyone who applies for a debt consolidation loan will succeed, here are some of the reasons lenders do not approve all the applications.
You have no security for a debt consolidation loan
Lenders and creditors often require a security from people applying for a debt consolidation loan. Mostly they will ask you for one of your assets as collateral. Your asset should be worth the amount you get in debt consolidation loan. The collateral is very useful to lenders in the case you do not make the consolidation repayments.
When the payments are not made on time, the lenders sell your collateral to pay off the unpaid loan. Normally debt consolidation collateral is usually a home equity or your car. If you do not own any valuable assets, you are less likely to receive a debt consolidation loan from most lenders.
Poor credit reports and credit scores
Lenders check your credit history and scoring before they consider your application for a debt consolidation loan. Some creditors use a standard automatic scoring system while other use analyst to study your credit report. They check the loan and transaction history on your credit card.
When all the loan and credit payments are made in time, you credit report will be positive. A positive credit report means you have a good credit scoring. If you are fond of not paying all your bills and loans on time, your credit history will reflect as negative to the lenders. This means you have a poor credit score and are less likely to get a loan approval.
Your income is not enough
Lenders also calculate your income against monthly expenditure to know how much you have to spare each month. Lenders want to make sure you have enough money to pay off the loans, to manage all your monthly commitments and still have some left for your utilities
When they calculate your income minus all the commitments, your disposable income should be more than 25% of your total income for you to get a loan approval. If a lender qualifies you for a debt consolidation with a low income, you won’t be able to make the loan payments and you will lose all your assets
Your credit history is not enough
Your credit history contains all your loan transactions and payments. The lenders check your history to get a glimpse of how you handle your loan payments. When you have a long credit history, creditors have a chance to see how well you pay back your loans and if you meet the deadlines.
If your credit history is short or nonexistent, you will not receive a debt consolidation loan because the lender finds it hard to estimate your loan payment pattern.
If you have too much debt on your loan or credit card, you will not be approved for a debt consolidation plan. Too much debts show that you are financially unstable and won’t be able to make the monthly payments on time.