Applying for a loan and repaying the same in installments might seem like an easy process, but it could be difficult for many without proper planning. While some manage to repay the installments and interest on time, there is also a section of borrowers who often struggle with repaying their loans and thus end up being deemed as defaulters by the lenders. The same is also reported to the credit bureaus impacting the credit scores of defaulters. However, such defaults can often have several consequences and thus it is important to understand the implications of defaulting on a loan.
Loan defaults can lower the borrowers’ credit score, further affecting their financial credibility and making it difficult to avail new loans in the future. Also, the consequences of default can vary depending on the type of loan. While defaulting on a loan can have lasting implications on the borrower’s creditworthiness and financial standing, a question still arises on whether an individual can apply for a fresh loan after having defaulted on a previous one.
Scroll down to know the answer in detail.
Can you apply for a fresh loan after defaulting on one?
While it could be difficult to apply for a new loan after having defaulted on the previous loan, it is not completely impossible. Some lenders do consider applications from borrowers with a history of loan default, but a few factors do come into play that can influence the same. Borrowers need to take care of a few things like streamlining their finances, repaying their previous debts, automating crucial payments, and avoiding delayed or missing payments.
The following factors must be taken into consideration before applying for a fresh loan:
Credit score: Failing in clearing dues can have a bad impact on your credit score, a factor that is very crucial in determining loan approval. To make lenders consider your loan application, it is recommended that you improve your creditworthiness by making timely payments.
Loan type: While lenders often hesitate to approve fresh loans of bigger amounts to defaulters, however, some can still approve those with small amounts. Despite any default, you can still apply for small loans and chances are higher to get approval for lower amounts.
Income stability: Despite having a history of loan default, lenders can still consider approving your loan application on the basis of your income and employment stability. A steady income and a secure job increase the chances of approval.
Clearing past debts: While making timely payments can improve your credit score, you must also work towards rectifying any outstanding default by settling unpaid dues. It is advisable negotiating with the lender to reach a resolution.
A strong financial profile: Lenders are more likely to approve loans for individuals having a strong financial profile with a steady income, properly managed expenses, and savings.
Having done all of it, one can apply for a fresh loan once their credit scores are improved, past defaults are rectified, and dues are cleared.