Posted: 1 Sep '18

Top Reasons People Are Declined for Debt Consolidation Loans

Being denied for a debt consolidation loan can be frustrating, but there is usually a good reason why an application has been declined. Here are the top reasons why lenders refuse applications for debt consolidation loans.

Reason #1: Issues with Poor Credit

The most common reasons that people are denied a debt consolidation loan is that they have blemishes on their credit report or a low credit score. Late payments, defaulted credit accounts, and judgments can result in negative information being recorded in someone's credit file, which can prevent them from obtaining financing at a low interest rate -- or even being approved at all. Carrying high balances on current credit accounts can also have a negative impact on an individual's ability to qualify for a debt consolidation loan.

Reason #2: Too Much Debt

When assessing an applicant's ability to repay a loan, lenders will calculate that individual's debt-to-income ratio. This ratio is a measure of what percentage of that individual's gross monthly income goes toward paying debt. If this ratio is too high -- meaning the individual's income is not high enough to cover his or her debts -- a debt consolidation loan application will be declined.

Reason #3: No Collateral

Since debt consolidation loans carry risk for lenders, many banks, credit unions, and trust companies will require collateral to secure financing. This means that unless an individual can use an asset, such as their home or car, as security for a debt consolidation loan, he or she may be denied for financing.

Reason #4: Insufficient Credit History

There are many reasons that someone may not have a long enough credit history to get approved for debt consolidation loans. Perhaps he or she has only recently moved to Canada or has credit cards that are never used. Most lenders will refuse debt consolidation loans to individuals who don't have an established payment history, as there is no indication of how well the individual manages his or her credit.

If you've being denied a debt consolidation loan for one or more of the above reasons, we can help. Contact us today to discuss your financial situation and obtain expert advice on getting approved for a debt consolidation loan.

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