Second Look Financing: Refused a Loan, What to Do Next
Loan products make it possible to solve various tasks – from replenishing the current budget to acquiring capital-intensive objects, bad credit electronics financing and appliance financing. But in some cases, credit organizations may refuse a loan to people who apply to them. What to do in such a situation and where to get money if banks reject your application?
Why would a bank decline a loan?
Bank loan rejection can be associated with existing debts, delays and negative bad credit history although these factors are always dominant.
All banks and microcredit institutions define their requirements for the borrower. Any non-compliance with the set criteria may result in a refusal. Moreover, these criteria are analyzed automatically using a complex scoring system. Common factors that can increase the risk of loan refusal are:
- Having a large number of dependents: when the system believes that you will not be able to cope with loan payments due to children, non-working relatives and other persons dependent on you;
- Little work experience. The bank will consider that there is still a high risk that you will be fired and not find a job. In addition, this criterion is triggered if you have a long experience but you recently got a new job;
- Frequent change of place of work. If you change employer too often, the bank treats you like an unreliable borrower;
- Credit history. If you have already taken loans, then the scoring system will certainly analyze the history of your payments. If you were overdue in payments or you took out loans very often, your credit score will be very low.
If the potential borrower meets the initial requirements, the bank makes a request to the Credit Bureau and also analyzes the borrower’s creditworthiness.
Another reason for loan refusal may also be the incorrect filling of the application form. In this case, such shortcomings can be easily eliminated. Another thing is that false information was deliberately provided. They are often interpreted by a credit institution as an attempt at fraud.
Recently, banks have tightened requirements for borrowers. In fact, borrowed funds can only be used by officially employed US citizens who are at least 18 years old and have a good credit history. An interesting fact is that even the absence of credit history can become a reason for a loan rejection since the lender does not have a basis for assessing the creditworthiness of a potential borrower. The question arises: “Where can I get the money if I was refused a bank loan?”
4 options when you can’t get a bank loan
There are several ways to get money if you can’t get a regular loan. These include:
- Contacting a pawnshop;
- Loans from microfinance institutions;
- Making a credit card.
Let’s tell you more about each of the above ways to get money.
In pawnshops, you get money on the security of a movable property. The collateral can be:
- Various household items (fur coats, electronics, etc.).
The advantages of such a system are that you do not lose money – in case of problems with payments, you simply lose the thing that you have pledged. In addition, borrowers are rarely denied in a pawnshop if they provide really valuable collateral.
But there are also many disadvantages here. These include:
- understatement of property value;
- high interest on the loan;
- small loan amounts;
- loan term does not exceed 1 year.
In general, a pawnshop can be used as a last resort if you have been refused a loan elsewhere.
Crowdlending: a credit alternative
Where to get a loan if all banks refuse? Such a situation is difficult to imagine. However, the lack of collateral or other reasons can still force citizens or business representatives to look for other solutions.
Crowdlending is a form of lending that is fundamentally different from all known types of financing. The borrowed funds can be used by individuals and companies. Funds are provided on a personal loan basis. In most cases, no collateral is required. Such operations are performed using specialized Internet sites. Intermediary companies organizing such services can use various systems for analyzing creditworthiness.
Internal credit ratings are the most popular. Expert analysts are often involved in the process. Lenders may offer terms based on ratings or other factors. Large sums are provided in installments on the principle of collective financing from several lenders. Legal entities should take into account that they may be charged with the obligation to pay tax on income received by the creditor.
Loans from microfinance institutions
We will dwell on this point in more detail since, in our opinion, loans from MFIs are the most convenient and safe way to get money when banks refuse. Moreover, the offers on the microfinance market today are extremely diverse. Currently, there are 1 popular loan types offered by MFIs:
- Payday loans. A payday loan is a cash advance to cover you until your next paycheck arrives. Such loans are very relevant for solving current financial problems, as they are provided promptly, online and imply very loyal requirements for borrowers. But it is associated with significant risks for the lender, therefore, it is associated with very high-interest rates;
- Installment loans. An installment loan is a form of consumer debt that is repaid over time in regularly scheduled intervals. The loan amounts usually range from $1000 to $5000, and repayment terms can range from a few months to over 30 years.. And, most importantly, the cost of servicing them is quite comparable to bank loans.
Banks are now actively promoting credit cards as one of the main products for private consumers. In fact, such a card always provides you with an approved loan for a certain amount. They are approved more often than regular bank loans; sometimes you do not even need to go to the bank to get a credit card. But there are a number of nuances here:
- If the bank has already refused you a loan for the required amount, then, most likely, you will not be given a credit card with the necessary funds. However, you can get a card with a small limit. It will be calculated for you personally when you get a credit card. Thus, you will at least find out what amount you can get;
- Serving credit cards costs money. As a rule, the amounts are small. But this must be remembered;
- There will be problems with cash withdrawals. Credit cards charge high interest for cash withdrawals.
We recommend getting a credit card even for those people who do not need a loan yet. Having such a tool “just in case” never hurts. In addition, a credit card is a good tool for obtaining a loan without interest. Typically, interest on credit cards begins to accrue 1-2 months after you withdraw your money. If you manage to pay off the debt during this time, then you will get an installment plan.
Summing up: what is the best second look financing option?
Most of the alternative methods of getting loans (not in a bank) allow you to get a small amount of money for a short period. If you need a loan product comparable in terms of convenience and conditions to the offer of banks, it makes sense to contact an MFI. Such organizations have occupied a special niche in the microfinance market. They offer a variety of product lines to help potential borrowers meet a variety of financial challenges. Individuals can choose loan programs that suit their individual situation. This approach allows borrowers to solve the most complex financial problems.
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