Turned Down for a Consolidation Loan? Here’s What You Can Do

Debt consolidation can be a smart way to streamline multiple payments and better manage your personal debt, but getting approved for a consolidation loan with good borrowing terms can be much more difficult than many people anticipate.

If you’ve been turned down for a consolidation loan you may feel discouraged and as though you don’t have any other options, but there’s good news – what many Canadians don’t know is that it is possible to consolidate your debt without borrowing. Read on to learn about some common reasons individuals are denied consolidation financing, and what you can do instead.

Why Debt Consolidation is Helpful in Paying Off Debt 

Often people who want to consolidate their debt are looking to get a handle on a financial situation that may be getting stressful or overwhelming, and gain better control over growing balances and payments. There are usually several benefits people try to achieve in consolidating their debts, such as:

• Making one monthly payment to cover all debt instead of trying to manage multiple payments.
• Having a clear plan to pay off debt rather than making inconsistent payments.
• Getting a lower interest rate on the balance owing, reducing the overall cost of carrying debt.

Debt consolidation with a lender means you’re taking out a new loan, not just changing an existing debt, and this means you must meet the lender’s qualifiers. Many consumers first turn to their bank or another lender when they want to consolidate their debt, and, as many discover, getting a consolidation loan can be a lot more difficult than they thought.

Reasons You Might be Denied a Consolidation Loan 

There can be several reasons you might have an application for credit rejected by a lender, and while not all lenders will have the same checks and qualifiers in place, here are some of the common reasons why you might not be able to get a consolidation loan (or other financing):

1. You have a low credit score due to a credit history that shows difficulty maintaining your payments, or a lack of credit history.

Your credit score is an ever-changing number ranging from 300 (low) to 900 (high). To get a consolidation loan with good terms, borrowers generally want you to have a credit score in at least the mid-600’s. Higher scores can qualify for you for ‘best terms’; less than this and you might only qualify for borrowing with a sub-prime lender, which typically comes at a higher cost.

2. You don’t have a major asset to use as security against your loan.

A lender may deny you a consolidation loan if you don’t have a significant asset such as home equity or a vehicle to pledge as collateral for the loan. Lenders will often ask to have an asset as security for borrowing so they have additional means to recover their money – if you stop paying they can seize and sell the asset.

Lenders may also ask you to bring in a co-signer to back up your loan. Much like using an asset as collateral, this gives your creditor other avenues to collect their debt, but carries significant financial risks to your co-signer, not to mention any relationship risks, if you have difficulty making your payments.

What You Should Know About Co-Signing Debts

3. Your income is deemed too low or inconsistent to meet the lender’s threshold.

Lenders want to be assured that you can afford to repay your loan within the amortization period and, from their perspective, the higher your payments are compared to your income, the riskier it becomes that you’ll default on your loan. This can be particularly problematic if you have a lot of debt, have seasonal or part-time income, are self-employed, or lack employment history.

4. Your debt load is too high to qualify for borrowing.

If your debts are high in comparison to your income lenders are likely to deny you a consolidation loan. Lenders may interpret a lot of debt as symptomatic of you having issues controlling spending or they may consider your debt-to-income ratio simply too unbalanced for you to be able to reliably repay a new loan.

How Much Debt is Too Much?

What Are the Alternatives to a Consolidation Loan?

Fortunately, borrowing isn’t the only way to consolidate your debt to get relief from accumulating interest and never-ending payments. In Canada consumers have a few options to consider that can serve to streamline multiple payments, ease interest charges and relieve pressure on your monthly budget.

Consumer Proposals – Consolidate and Cut Debt (up to 80%)

A Consumer Proposal is a unique option in Canadian law and is one of the best ways to consolidate – and cut – your debt, without borrowing, interest, or added fees. This is a legal debt consolidation solution you can access only through working with a Licensed Insolvency Trustee.

• A Consumer Proposal can be used to consolidate virtually all types of debt – credit cards, payday loans, lines of credit, government debts such as income tax balances, business GST, CERB overpayments and more.
• You’ll offer to repay your creditors the portion of your balance you can reasonably afford to pay over a period of up to five years, and they will agree to forgive the rest. It’s not uncommon in a Consumer Proposal for debts to be cut by up to 50-80%.
• Your debts are frozen and because there is no borrowing needed, there are no interest charges.
• A Consumer Proposal will stop interest charges as well as collection actions, even government wage garnishments or bank account freezes.
• The administrative costs for your Licensed Insolvency Trustee are calculated by government-set tariff and are paid from the funds your creditors receive – there is no added or out-of-pocket cost for you – you simply pay what you’re offering your creditors.

A Licensed Insolvency Trustee can talk with you about your situation and whether a Consumer Proposal is your best option. For many people a Consumer Proposal is the ideal solution, allowing you to repay what is affordable and giving you a clear debt-free date.

Credit Counselling – Repay 100% of Your Debt

These informal debt repayment plans are coordinated by a credit counsellor who will try to negotiate an interest reduction or freeze with your eligible creditors, and you’ll make your consolidated monthly payment to the credit counsellor.

• Credit counselling doesn’t reduce your debt and can only consolidate basic debts.
• Because you’re not reducing your debt and will pay a fee to the credit counsellor on top of what you pay to your creditors, credit counselling plans can have high monthly payments, making them an unaffordable and unreliable option in many cases.

Unqualified Debt Advisors – What Consumers Need to Know

Can I Afford a Consolidation Loan? 

It’s important to understand that if you’re considering a consolidation loan or have been turned down for one, your debts may have already reached a point where simply combining them into one new loan is not going to be a significant enough solution to allow you to get out of debt without considerable cost or time.

• If you add up all your debts, divide this number by 60 and couldn’t afford the resulting number as a realistic monthly payment, this is a very simple way to know that a consolidation loan would likely only delay a later cash-crunch and prolong debt-stress you may be experiencing.

If you think you have a debt problem, are worried about managing your debts, or want to find a better way to pay off your debt within five years, the best thing to do is talk with a Licensed Insolvency Trustee to get qualified expert advice about your situation and all your options.

Get Help with Debt Consolidation – Talk with a Licensed Insolvency Trustee About

Licensed Insolvency Trustees are Canada’s only designated debt help professionals, and we are the only experts qualified to offer debt advice to consumers, including solutions that can help you get forgiveness for virtually all types of debts.

• If you live in BC you can talk with a Licensed Insolvency Trustee from Sands & Associates, we serve the entire province from local offices and you can also access our full suite of debt help services over the phone or online – whatever is most comfortable and convenient for you.

When you need guidance on dealing with debt, a Licensed Insolvency Trustee is your best resource, and all Licensed Insolvency Trustees should offer you a free, confidential debt consultation. This is your opportunity to get specific advice about your unique situation and explore all your options, including debt consolidation financing, Consumer Proposals, credit counselling plans and more.

• We’ll spend the time to understand your concerns, needs, and goals and at the end of your consultation you should have all the information you need to make an informed decision about how you want to move forward – and a clear outline of your next steps.
• You don’t need any to get a referral to talk with a Trustee, and there are no qualifiers for you to meet. Just reach out to a Licensed Insolvency Trustee local to your province directly.

You owe it to yourself to get debt help, and we’re here to support you. No judgment, just solutions!

Talk with a non-judgmental debt help expert at Sands & Associates to get a debt-free plan that works for you, and move forward with your life.