Your home equity loan may be under review by your lender because you want to use it to consolidate your debts. If the review is positive, your lender should issue the loan. If not, you should contact your lender, and a review may be initiated. Here is what you need to know about requesting a review for a consolidation loan that has been denied.
Lenders don’t like to lend money to people who seem like they’re not going to be able to pay it back. This is where the process of consolidating your debts comes in. If you have more than one type of debt – like credit cards, student loans, or other debts from different lenders – consolidating those loans into one loan can help you pay them all off faster and save you money in interest. But it’s not always easy to get the loan you need.
What is a Consolidation Loan?
The Consolidation Loan is a loan that combines a regular home loan with a mortgage to have a single monthly payment that reduces the principal on your mortgage, with the idea of having interest-only payments for a few years. When the person who has this loan wants to pay it off, the interest-only payments are stopped, and the loan is paid off over the remaining term. In most cases, the loan is paid off at the same time as the original mortgage. Though the consolidation loan can save the borrower money over time, there are some reasons why a consolidation loan might be declined.
Here’s what to do if your consolidation loan gets rejected:
- Know the reason why they declined
While a lot of people are seeking out consolidation loans to save money, there can be many reasons why the financing will be declined. Many industries lend out money, and many of them have policies that affect what qualifies as a good loan. While some of the major reasons loans are declined are off-book loans, high-interest rates, or unpaid debts, the most common reason is insufficient paperwork. It can be hard to convince a bank that you are in a position to pay back a loan. You may not be able to afford this loan on your own and need help to pay off your credit cards and other debt.
- Credit counselor consultation on how to repair credit
If you’re neck-deep in debt and need a bit of extra help, you may be able to use a credit counselor to help you get out of the hole. This can be a helpful step in the right direction for a lot of people. Credit counselors can help you solve any problems you might have with your credit, from a bad credit score to a foreclosure that you owe money on. Since credit counselors are a fairly new industry, there are many different ways that they work. Most credit counselors work directly with lenders and can help you with disputes or negotiate down any difficult situations. While this option may not be as effective as an attorney’s, it is still an option worth looking into. You could also seek help from someone like these chapter 7 bankruptcy lawyers in Harrisburg PA who may be able help you restructure your debts and get yourself back on track, as well as saving your assets from foreclosure.
- Build up credit and try again
Maybe you just need a little time to build up your credit history before you get a bigger loan. If you’re one of the unlucky few who get turned down when trying to get approved for a consolidation loan, you may have some cause for concern. But unfortunately, being turned down doesn’t necessarily mean it’s time to give up on your consolidation loan dreams.
Instead, it may be time to take a step back and re-evaluate your credit situation. Maybe you’re taking on too much debt to get approved for a consolidation loan. When you have built up an acceptable credit score, you can then apply for a new loan at your bank or wholesale mortgage bankers, which would most likely be accepted. Similarly, you may need to look at the other financial products you have, like credit cards and auto loans, to make sure they’re not the culprits. Maybe you simply misunderstand the consolidation loan process.
- If it fails again, have another option
Suppose you’re a homeowner and your lender rejects your application for a variable rate mortgage (VRM) to consolidate your existing variable rate mortgage with a fixed-rate mortgage (FRM). In that case, you will probably have to look for another lender to refinance your existing mortgage.
If you’re feeling down about your new bank’s decision to refuse your consolidation loan, don’t worry. You’re not alone. Consolidation loans are one of the most common types of loans customers apply for, but not everyone is approved.