A personal loan application has been turned down? The emotion is unpleasant, especially if you desperately need the money, but it does occur occasionally.
The next time you try to secure a loan, you’ll be better prepared if you know why your application was rejected.
Here are the top five reasons why a personal loan application is denied.
When your credit report contains inaccurate information
An inaccuracy in credit reporting can negatively influence your credit score, which could make it more difficult for you to receive a loan. Out-of-date personal information or listing the same debt more than once, resulting in a duplicate, are examples of errors.
Any errors in the number of credit inquiries on your file, as well as adverse notices, can affect your credit score. You would have received an unfavourable notice from your lender if your loan application had been rejected due to information in your credit report.
The information in your credit file must be accurate, so getting a copy and having it corrected straight away if you find an error is a good idea.
Capacity to service the loan
Having a clear understanding of your financial condition and ability to repay the loan includes the lender having a clear picture of your income, debts, and expenses. Your application will be denied if it is determined that the amount you have asked for will put you in a difficult financial position.
A large amount of debt
A personal loan can help you consolidate your debt, but your loan application may be denied if the total amount you owe is too high. When evaluating your loan application, lenders will look at your debt-to-income ratio (the percentage of your income toward paying down existing debt). Paying off your existing debt before applying for a new loan can help set you up for success.
Job insecurity and fluctuating earnings
The majority of people’s income will come from employment. As a result, lenders need to establish that you have a stable financial situation to approve your loan application. Your loan application may be rejected if you’ve been switching jobs frequently and can’t demonstrate that you have a steady source of income.
Inability to obtain credit
Either you don’t have enough credit history for lenders to examine your financial behaviour, or you do. Other possibilities include problems with your repayment history on existing debts or overdue payments of more than 60 days, where debt collection work has already begun. One of the reasons a lender can reject your loan application is because of your bad credit history.
When you apply for a personal loan, it counts as an inquiry on your credit report, so keep that in mind.