Personal loans can be a lifesaver, especially in times of dire need when you have limited cash. However, getting your personal loan application rejected can be quite frustrating at such times. Lenders typically look at different things like your creditworthiness before choosing to offer you a loan or not. Other factors such as your loan payment history, credit score, income stability, and age will determine the loan amount you can get.
These factors will also dictate other policies by the financial institutions such as the interest rates of the loan. In order to increase your chances of loan approval in the future, understanding the common reasons behind loan rejections is a wise step. Here are four common reasons why your personal loan application may get rejected.
Failure to Meet the Threshold Requirements
Lenders tend to have different policies when offering loans. While some will demand that you present them with your age and income details when filling in an online loan application form, others will need you conduct an income and expenditure check to assess your affordability before they consider approving your request., according to a leading credit broker in the UK.
In case you fall short of the threshold requirements, then the chances of getting the application rejected are pretty high. Luckily, there are plenty of online loan eligibility calculators that can be used to determine your eligibility for a loan. Using such tools can make you feel at ease when applying for a loan, as you will already know your chances of getting the application approved.
You Have Poor or No Credit History At All
Financial responsibility is a key factor that lenders look into before offering anyone a loan. In case you have a history of paying your bills early, financial institutions will term you as a more financially responsible individual. This makes it quite easy to get your loan approved. On the other hand, people who have a poor credit history and never applied for a loan before will most likely, be treated as risky borrowers.
Considering that lenders cannot use the loan history of such people to determine the risk involved in offering them loans, the chances are that they will reject such applications. The best way forward is to stick to paying your bills on time. Applying for a small, short-term loan and paying back early or as scheduled will also help you build your credit history.
Frequent Job Changes
The stability of your job is a key factor when lenders are determining whether to offer you a loan or not. In case you have an unstable income or change jobs every once in a while, lenders will see you as a risk, and opt not to offer you a personal loan. Working under the same employer for about three years is a sure way to portray that you have a stable income.
In some cases, however, your loan application might get rejected despite having stable employment. If the lenders think that your employer has an unstable future, they can also deny you the loan to avoid the risk of your income getting affected negatively. Income stability is considered one of the focal points of qualifying for any type of loan.
You Have Borrowed Too Much
Catering for too many loans at a go can easily mean that you have a financial crisis. As a result, the chances of you defaulting on the new loan are quite high. This could easily lead to the rejection of your application. While the first two lenders might be lenient enough to offer you a loan, the subsequent ones will shy away from approving your loan.
Sadly, as noted on The Balance, getting too many personal loan rejections may have a negative effect on your credit score, which will further narrow down your chances of getting approved for other loans. It’s wise to keep your borrowing at a minimum and only borrow when absolutely necessary.
While you can control some loan rejection factors like your credit score, others can be tough to control. In case the problem can be fixed, working on it will increase your chances of getting your loan request approved. Otherwise, looking for other alternative ways to get money like part-time income generating ideas and selling off stuff you don’t use can boost you financially.