Most people seek a insurance only when they are in dire need of funds. This money can be used for emergencies, getting a new car, and even home repairs. Whatever the reason a person needs a insurance, it can be disappointing when they are rejected. Thanks to the Equal Credit Opportunity Act, lenders are required to disclose their reasons for rejecting a insurance application. Here are three of the most common causes.
Reason 1: Credit reporting
The first thing a lender will do when someone applies for a insurance is pull their credit report. A lender’s credit reports provide much more information than just a number. If a person has a large number of insurances owed already, this may make the lender more cautious about increasing the person’s debt.
This credit report will also display the number of accounts receivable, any accounts payable and the payment history of the person applying for the insurance. All of these are components of a credit report that can paint a picture of a lender, making them more likely to lend you money or decline your insurance application.
Checking for discrepancies on a credit report can solve a lot of problems for a potential borrower. If they find that there are items on their credit report that are not theirs, they will need to call and correct it.
Reason 2: Insufficient payment methods
Lenders must know that the money they lend will be repaid. When the borrower does not have sufficient income or means to repay the insurance, the lender may be less inclined to give that borrower a insurance.
With the huge amount of paperwork it takes to apply for a insurance, the lending company will ask the potential borrower to list their income and be prepared to provide proof of income. Having this evidence can help the lender justify lending the money if there are any questions about why they agreed to the insurance.
Reason 3: Too Much Debt
Lenders take a close look at a potential borrower’s debt-to-income ratio before lending them any more money. If a lender sees that a person is already using 50% or more of their earnings to pay off debt, the lender may consider them a high-risk borrower.
Insurances are not the only thing that lenders will look at in terms of debt. The cost of living, credit cards, student insurances, and group accounts are a factor in how much debt a person has.
Hard money insurances as an alternative
If the potential borrower wants to try the insurance application process again, correcting the reasons for the rejection is the first place to start. After they validate the information on their credit report, lower the debt-to-income ratio, and either add collateral to the insurance or prove that their income is sufficient to support the debt, they can try again. The most important thing for borrowers to remember is that double checking of accurate information is key. However, if the banks still refuse your application, another option for obtaining insurances is through a private fixed-money lender. Hard money lenders offer insurances based on real estate equity, so it’s a good alternative when the banks don’t approve of you.