When an individual develops a project that is close to his heart, he often needs a financial boost to carry out his plan. When a bank or a credit institution turns down a consumer loan application, however, it can be extremely discouraging. Fortunately, this setback can be overcome.
Why can consumer credit be refused?
A refusal of credit is not an insurmountable situation. What to do? First of all, you have to realize that this type of refusal is quite common, since every second application is refused. There is no “right to credit” and banks are not required to provide you with a reason for refusal. We must also be aware that a loan refused by one bank can be accepted by another. There are many reasons why credit can be declined. Here are the main refusal criteria affecting applicants:
- The applicant has signed too many loan contract offers, which are still being repaid;
- The applicant has already had problems repaying bank loans;
- The applicant has a profile deemed “at risk” by the lender;
- The applicant’s budget is insufficient.
Why do banks refuse certain files?
Certain elements of the file can be causes of loan refusal. Bank overdrafts, and more broadly, account management, involves the presence of agios, which points out the mismanagement of your accounts to your advisor. That, however, is not the only reason for refusal.
A debt rate exceeding 33% is another reason, as is the amount of savings, the estimated lifespan after a home loan, the level of contribution, professional stability, and the health of the borrower. In other cases, the wear rate may exclude certain profiles (for example, borrowers with health risks).
The wear rate
The rate of wear and tear is the maximum rate to which banks must refer when financing individuals. That is to say, the real estate rate that they propose is regulated. All the credit charges are integrated into the total cost of the real estate loan which must not exceed the rate of wear and tear.
What are the other solutions?
A first refusal of credit can be discouraging, however there are solutions to bounce back and succeed in buying or building a house or apartment. What are the possibilities if the bank refuses? How do you review and refine your application to renew a real estate loan?
If your credit repurchase is refused everywhere, what can be done to remedy the situation? You’re going to have to look at other solutions to increase your chances. You can start by turning to a broker or trading expert appointed by partner banks. They are privileged intermediaries between credit institutions and borrowers. Using a broker will allow you to be listened to and supported in your credit buyback procedures with its partner banks.
Private alternatives are also beginning to emerge. This is the case with loans between individuals. Easy and free of management fees, it is an ideal alternative solution in case of refusal of your requests for credit repurchase by conventional banking institutions. However, there is no question of neglecting your file, as it must be as complete as possible and present sufficient guarantees.
If your financial situation is worrying, however, it is advisable to wait and regularize it as soon as possible. This recommendation also applies to those who are unable to make immediate repayments. As a last resort, you can submit a file of over-indebtedness with the Bank of France, and you will then be registered with the FICP (national file of incidents of repayment of loans to individuals). If your file is declared over-indebted, the Bank of France commission will draw up a conventional recovery plan. Depending on your situation, this plan of over-indebtedness may take the form of a personal recovery procedure with or without judicial liquidation. Personal recovery is a complete cancellation of your debts with your creditors.
Reduce your debt ratio
On average, banks do not provide a home loan when the debt ratio exceeds 33%. To the extent possible, paying off all loans in repayment will reduce this rate. Credit buyback is a solution. Because we group all credits together, pay them back at a single rate and make only one payment per month. You can also reduce your debt rate by limiting non-critical expenses, and by renegotiating insurance and telephone contracts to reduce expenses.
Increase personal input
For a real estate loan, the banks appreciate a personal contribution equal to at least 10% of the value of the housing. It also reduces the borrower’s time frame and provides a better rate. To increase this contribution, some individuals use a donation from a person in their family. You can also unlock your employee savings for the purchase of a principal residence. There is also the Home Savings Plan (ELP), which is used to build up savings over the years to finance a project to build or purchase a home.
Clearing a bank overdraft
The banks review the account statements for the months preceding the request for real estate credit. If the balance is receivable, it is best to pay off the overdraft before sending a credit application. Balance your expenses by taking stock of your monthly cash flow, vital and incidental expenses. By eliminating or reducing certain expenditures and putting budgets in place, you can save a lot of money.
Use a mortgage broker
Brokers help to negotiate with banks and allow many households to get their real estate credits. These professionals are familiar with the workings of banking institutions and optimize their clients’ files to maximize their chances. Using a broker comes at a cost, but it can be offset by the resulting savings.
What to remember in the event of credit refusals everywhere:
- Several reasons exist: too many outstanding loans, previous payment incidents, a fragile financial situation, etc.
- To try to remedy this, check if a record exists on your behalf at the FICP.
- Finally, also consider credit buyback and insurance delegation.