What happens if you get knocked back for a loan?

GETTING knocked back for a loan is less than ideal, but rejection needn’t be fatal to a property dream.

John Tindall, a Choice Home Loans mortgage broker in Wattle Grove, Sydney, says being refused finance can be scary, but the key is to not panic.

He advises people to take a systematic approach to finding a solution. First, find out why the finance hasn’t been approved, he says.

"I have had clients knocked back for all sorts of fixable reasons. For example, a mobile phone default that was actually someone else’s. The next step is to address the gaps. Persistence usually pays off," Tindall says.

How does the lender view my income?

Most finance denials relate to income, he says.

"Usually it’s for not having enough income to make the repayments. Remember, you’re not being assessed at a 4 per cent interest rate, but at a 7 per cent plus rate, for when rates inevitably rise," Tindall says.

"Knowing how your type of income is viewed by the lenders is important, whether you’re full-time pay-as-you-go employee, casual or newly self-employed. Having too much existing debt, such as credit cards, is another handicap.

"Poor credit history, showing late payments or old defaults, is another important factor.

“We recommend clients get a copy of their own credit report, which can be done for free," he says.

Loans for people with bad credit

Bad credit doesn’t have to be a deal breaker, Tindall says.

"It depends on what the issue is," he says.

"If it’s, for example, four or more enquiries regarding different home loans, sometimes a simple explanation will satisfy a lender. If there’s an old default or as a client of mine had, a $3000 mobile phone default caused by identity theft, you can apply to the party that lodged the default to have it removed."

There are also free credit repair services that will examine accounts and specify which ones need resolving and how to do it, Tindall adds.

As with most things, knowledge is power when it comes to applying for a loan.

"Knowing the strengths and weaknesses of an application is important. For example, a strong income is good, but a healthy deposit and a clean track record are important too," Tindall says.

"Having an independent assessment of your situation will tell you if it’s time to go again. The trick is to present a good case to the lender in a way that their assessors will understand and accept," he says.

Loan declined: When can I apply again?

Beware of repeatedly applying for finance though, Tindall says.

"Lenders are definitely wary of people who apply for finance too often."

"It looks as though they’re trying to shop their way out of trouble. Ideally, you don’t want to submit an application unless you have a strong chance of success, and a mortgage broker can assess this for you without you having to speak with your bank."