Master of Money Management

What to do if your loan application has been declined

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Never before has the term ‘money is too tight to mention’ been more relevant. The economic slowdown has left many people short of cash and looking for relief. While borrowing money can be a short term solution to cash flow difficulties, it has to be done responsibly. The National Credit Act has made it more difficult for the man in the street to borrow and while this may be a frustrating state of affairs, the tightening of lending criteria is ultimately a good thing. While you may feel frustrated by being refused credit, it the long term it could put you in a better situation. However this is cold comfort if you were relying on the loan for an important purchase.

Securing a loan depends largely on the way you have conducted your previous credit commitments.  If you have handled your accounts well in the past, your chances will be better than someone who has missed payments, defaulted or bounced cheques. Regardless of your good credit record, affordability is probably the biggest single factor when applying for credit and even the best credit record will not justify a loan that you may not be able to honour.

Banks have years of experience in assessing credit risk and they need to ensure that you can comfortably afford a loan. They are bound by the rules of the NCR responsible lending practices and could endure sever penalties for not complying.

If you are granted a loan and find you cannot make the payments, sleepless nights will be the least of your worries. You could end up with a judgement, being black listed at the credit bureau and your goods being repossessed. A negative credit record could also have an impact on your ability to get a home rental or even a job.

If you have been declined for a loan its time to take a step back and ask, ‘can I really afford the repayments and would my life materially change if I did not get the loan’?  Another question to ask yourself is how your current lifestyle contributed to the situation you find yourself in. After some soul searching you will be able to get a better perspective. If the loan you required was to fund a lifestyle purchase like a holiday or new car then you can probably live with the consequences and adjust your sights. If you needed the loan to keep your head above water then you need to see how you can cut expenses fast. A loan to pay off another debt is an exercise in madness; it just puts you deeper into the debt.

You are going to have to make sacrifices; no more fast food, premium TV channels gourmet coffee and little indulgences.

If you are declined for a less than perfect credit score, get a copy of your credit report and see if you have any defaults, adverse reports or judgements listed. If you do, you will need to sort these issues out buy arranging to pay off creditors. If you have a judgement and you negotiate a settlement (and yes you can get the debt reduced because the creditor has already written it off) you can get the negative listing removed from your report. It is important to negotiate with the original creditor, not the legal firm that handled the case. Debt collectors are less than sympathetic and can be hard- nosed.

Falsifying information in order to get a loan you can’t afford, is not only reckless it is illegal. Some individuals may lie about the amount of income they earn in a month.  This is misrepresentation of facts and it could land you (and the person who signed the false income letter) in hot water. The bank may sue the parties involved, for fraud (as a false income was declared); and for not meeting commitments.

Before you apply for a big ticket loan like a car loan or home bond, try and pay off some smaller debts and save up a little longer for a large deposit. While it is painful to have a loan application declined, it may be a really good reminder to get your finances in control and help you get into a better situation in the long term.

Voluntary repossession of your car does not let you off the hook.

Many people who find themselves in financial difficulty, decide to hand their financed vehicles back to the bank and assume that all will be forgiven. The problem with this action is that there is a good chance that if the loan is relatively new (less than a year) they will still owe the bank money, especially if they fell prey to a good salesman and bought everything from added chromed wheel arches to a NOS conversion.

Unless you are driving a rate Bugatti or Model T, your car loses a lot of its value each year and the biggest knock is often in the first year.  If you add a lot of extras to the vehicle, they are worth a fraction of what you paid for them in a resale environment. When the bank tries to sell the vehicle they will not get the full value of the original loan. You will be liable for balance. The bank however, will usually let you pay this off over a period of time. Obviously, this is not a good situation to be in because repossession will adversely affect your credit record, even if it’s voluntary. This also means that it will be difficult to get a loan for a cheaper car. The only other option to get access to wheels is to pay cash (but if you had cash, the car would still be yours) or to rent a car, which can be expensive.

The best thing to do if you can no longer meet the payments, is sell the car privately, (with the proper checks in place) you will get more for it and your shortfall may be less. Dealers will offer you peanuts for your vehicle. It is important to know that you can’t sell your car to a third party and not inform the bank, even if it is your best friend’s wife’s cousin who is a nun and has a direct line to the Pope. Anything can happen and if they don’t pay the installments you are still liable for them. The bank will be more than a tad upset if they find you no longer have possession on the car and they may prosecute you.

When you are headed for financial difficulty don’t wait until the wolf is at the door. Plan ahead so that your payments are up to date when you sell the car. If there is a shortfall, try and arrange alternative finance; preferably from a family member because your circumstances (such as a job loss) may prevent you from getting finance. Maybe you can get a family member to help you pay your car until you are back on your feet, this makes sense because you will probably need transport. If however, you habitually get into financial hot water and you constantly ask family members for help, they may black ball you. If this is the case, it’s time to have a chat with “me, myself I” and figure out the bad habits that leave you up the highway without wheels. To prevent something like this from happening, try and build up some extra cash as an emergency fund. Having three months salary saved up will give you enormous peace of mind and safeguard against financial calamity.

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