Debt consolidation loans are there for when you’re experiencing financial difficulty. It’s an easy fix for a debt problem that has piled up, and it’s also ideal for when you want to lower your interest rates and combine all debt into one monthly repayment.
While it seems like a good idea for most people, getting approved for a debt consolidation loan is not easy. Here are five reasons why people get declined for debt consolidation applications:
You Don’t Have Enough Income to Get Approved
A debt loan payment commonly costs more monthly compared to the minimum payments for credit cards. So, once you realize you’ll benefit more from a consolidation loan, you might only be able to make minimum credit card payments and not another dollar more.
Credit card minimum payments are usually so low that it can take up to decades for you to pay off your balance fully. Moreover, that’s only if you stopped using the credit card to pay for expenses.
Consolidation loans cannot be paid off over a long period unless secured by your home. They’re usually amortized over three to five years, meaning that payments need to be high enough to pay off the loan within that period. If your income cannot handle that much payment, you’ll likely get declined.
There’s a Problem with Your Credit Report and Score
Many credit report and credit score issues prevent people from getting approved for a debt consolidation loan. For instance, late debt payments or debts in collections can damage your credit score.
High balances owing can also contribute to the issue of getting approved. Since there are so many variables in a debt consolidation loan, you should instead read a detailed explanation of how credit scores are calculated.
You Can’t Present Enough Security or Collateral
Financial institutions generally ask for security or collateral as you apply for a debt consolidation loan. That is especially important if you’re someone who’s having a hard time managing all your payments. These institutions only want to make sure that you can make repayments for the amount they’ll lend you.
When you don’t have anything to offer as collateral, you might think about using a credit card to pay off your other debts at a high interest rate instead. Meanwhile, other people apply for an unsecured loan from a finance company at sky-high rates, sometimes as high as 30 percent.
So, if your goal is to reduce debt, then these choices don’t offer a viable alternative. That is because a large portion of your debt payment will end up on the interest rate, and not on principle.
Applying for a debt consolidation loan, much like any other loan, involves a lot of factors. If you cannot meet most requirements, you’ll likely get declined. Financial institutions want to make sure that lending you money is worth it on their part, so if they’re not convinced that you can meet monthly repayments for the loan you’re getting, they won’t approve your application.
Ottawa Mortgage Services provides mortgage agent services for first-time homebuyers, self-employed individuals, and commercial clients. We also help those applying for refinancing, pre-approvals, and debt consolidation loans. So if you’re looking for the best debt consolidation loans in Ottawa, ON, apply with us today!