If I Can Get A Consolidation Loan I Can Pay My Debt.
You’ve approached a bank for a loan to consolidate all of your debt but the bank turned you down and you can’t understand why. Sound familiar?
We hear this frequently when people come to discuss their options to deal with their debt. Quite often they tell us that if they could get a consolidation loan they wouldn’t have to see us. The payments on the consolidation loan would be less than the total of the minimum monthly payments on their debts so why won’t the bank loan them the money?
Let’s take a look at why the bank is not willing to help;
The bank representative got you to fill out their questionnaire which probably included much of the following;
-What you do for a living
-who you work for and how long you have worked for them.
-what you get paid (probably monthly, net after deductions)
-who is in your immediate family and what income they have.
-what assets you have and what they are worth
-what secured creditors you have such as a residence mortgage or vehicle financing, what they are owed, and the monthly payments.
-what unsecured debts you have and the amounts owed.
The reason they got this information from you is to assist them in deciding if your financial situation is strong enough to qualify for the loan amount you requested. They also want to know if you have assets with equity to see if you can give them security for a loan. Secured loans hold less risk for the bank and therefore are usually easier to approve.
The bank has established financial ratios that you have to pass to get a loan. For example, if your total payments on your secured loans are too high based on your income according to the scale the bank uses, they will reject your request. Or it may get turned down if the ratio of your unsecured debt to your income is too high. The expected ratios that the bank has set for loans are rigidly followed. They set these standards to avoid loan risk and it makes it easier for their staff to approve or reject loan requests “by the book”. They make few if any exceptions to these loan standards.
At the end of the day they are trying to get loans out to make money off interest, but they also want to avoid loans where they consider the risk too high. They tend to use the same standards for all loans so there is little chance of an exception for you if you don’t meet their standard. It can be frustrating when they don’t explain in a way that makes sense to you, why you didn’t qualify.
A Licensed Insolvency Trustee in your locality should consider all options available to you and provide answers to your questions including a better explanation of why you were rejected for a consolidation loan, to assist you in deciding what is the best method of dealing with your financial concern.