Any type of rejection, for example, when applying for a personal loan will leave anyone disappointed. It takes time and effort to prepare the documents that you need to apply for the loan, which means you’ll find it hard to accept the lender’s decision. Moreover, you will spend anxious hours waiting for the approval, meaning if you fail to get an approval, the first thing on your mind will be to ask for an explanation from the lender or bank. Fortunately, in this article, we’re going to look at 7 reasons for personal loan rejection and how to solve them.
1. Having a Low Credit Score
One of the reasons why lenders and banks reject personal loan applications is having a low credit score. Keep in mind that a credit score varies from 300-900.
Individuals with a credit score higher than 700 have better chances of enjoying fast personal loan approval. To improve your credit score, you should pay any outstanding loans, make timely payments and avoid overusing your credit cards.
2. Insufficient Income
Banks and online lenders will consider your income when considering whether to approve your personal loan. In the event that they find your income can’t sustain monthly payments, for example, according to their terms and conditions, the chances of you getting the loan will reduce.
Most lenders and banks will require you to enjoy a specific minimum wage for you to qualify to get a loan. If you meet the criteria, your personal loan application with have higher chances of getting approved.
3. Applying For a Large Loan Amount
When applying for a personal loan, you’ll be required to fill the “desired loan amount” section. What you should realize is that applying for a large amount, which your income may not be able to support, can make your application to be rejected.
Make sure you only apply for a loan that you can afford to repay. The best way to determine the right amount to apply for you is to use an online loan calculator. It enables you to know the right amount of personal loan to apply for.
4. Several Pending Debts
Lenders will consider your loan application against your existing debts. If the lender finds that you have several pending debts which your income may not be able to repay, they will reject your application.
Always make sure that your debt-to-income ratio stays 12% or lower if you want to avoid rejection from the lender. If you have too much debt, you should pay off some of the debts before applying for another loan.
5. Many Applications and Rejections
Whenever you apply for a personal loan and it gets rejected, you should remember that it will be recorded in on your personal credit report. On the other hand, when you apply for a personal loan, the lender or bank will ask your credit bureau for your credit report and credit score. Your bureau will consider the request as a hard inquiry.
It means the more loan applications you make, the more the number of inquiries, which ultimately brings down your credit score. Moreover, if you keep applying for loans without any concrete reason, you will look as if you’re desperate for money to spend, which can be another reason for rejection.
6. Failure to Have Stable Employment
Many online lenders and banks will only offer personal loans to individuals with stable employment. If you keep changing jobs or don’t have a stable job, chances are that your personal loan will be rejected.
Many lenders want to deal with clients with a stable source of income. If you keep changing jobs, lenders will consider you less trustworthy, meaning either your application will be rejected or they will charge you higher interest rates on your personal loan.
7. Failure to Match the Lender’s Eligibility Criteria
You need to fulfill other requirements for getting the loan from the lender. They include having the right income, giving correct identification details and be of age to apply for a loan. Other lenders will also require you to be resident of the city that they run their business. The best option for you is to choose a reputable and well-known lender to increase your chances of getting the loan.
Reasons for Personal Loan Rejection
Knowing what to have when applying for a personal loan and how to correct any issues can ensure you enjoy fast loan approvals. Using the above informative article, you should be able to get a personal loan to help you deal with issues such as emergency home repairs, car financing or pay your mortgage.