Did your personal loan application got denied? It can be hard to know what to do next or where to turn to. You can find out the reasons for your rejection, what you should do and how long you will have to wait before you apply again in the future. All of these are essential, so you can prevent it all from happening.
It also applies to other loan types that you’re applying for such as business loans, credit cards, and auto loans. It is best to narrow the gar between what you thought that’s possible and what your loan lender has agreed to.
Analyze Your Situation
First things first, know why you got rejected for your loan application. Lenders usually will be more than happy to help you on this and provide you with an explanation of why. They are also required to give you some disclosures, so there is no absolute reason why you should not find out why.
Here are some of the most common reasons for personal loan rejection.
- No credit or bad credit – Lenders check your borrowing history by looking at your credit scores when you are applying for a loan, that’s called a credit check. They’ll often want to see a history of your repaying and borrowing loans. But there are also times where you may not have borrowed much, or you defaulted on your loans.
- Your lender will give you a notice of adverse action to explain your credit history is the culprit. Defaulted loans and several inquiries are some of the reasons why. They’ll also explain the individual rights that you currently have. Not only that but it will tell how your credit report should be viewed. It’s free.
- Not enough income is also one of the reasons. Lenders will want to see that you can pay your minimum monthly payments before they are approving your loans. In some instances such as home loan applications, lenders have to calculate your capability of repaying your loans.
- A lot, if not all, lenders use the debt to income ratio to check if you are capable of handling payments upon your loan approval. They will compare how much money you earn monthly and how much you are going to spend on debt repayment ( with minimum payment assumptions). If they see that you can’t afford a new loan, your application is rejected.
- There are also other issues why your loan will be declined. One example is that your appraisal wasn’t high enough to justify your loan size.
- When you are going to apply for a small business loan, lenders check your personal credit. Unless you have a well-established business or have personal assets as collateral, you can be sure that your approval rate is quite slim.
The good news is you can increase your chances of having an approved personal loan via the following tips.
One of the best defenses to take against the rejection of your personal loan is to know what you have to do to be approved by a lender. Here are seven tips to increase your chances of getting approved.
Check the credit requirement
Your credit is one of the main reasons why lenders reconsider when you apply for a loan. It is especially true with an unsecured personal loan. Each one has its minimum that you need to meet so you can qualify.
Not all lenders will ask for a high credit score. But if you show them that you have a substantial credit, but you can’t meet the requirement of the lender, you will be rejected there and then. If you are quite unsure if your credit history or score can qualify, it is best to ask your lender before applying.
Check your minimum income requirements
For every lender, you might find that they have a minimum income requirement. You’ll need to do your research when it comes to this since often you will not see this listed on the website of the lender. You may need to call the lender directly.
Just like your credit, this is one of the necessary things your lender will consider. After all, if you don’t have enough income to pay your loans, you may as well can’t borrow.
Meet the employment requirement
Lenders usually check where you get your income. Often, they will consider several sources of income. There are times where freelancing work. However, child support or benefits are not enough to be considered.
A lender will often require you to be an employee in a company for a specific number of years or that you are receiving your income via direct deposit.
Enough collateral
When it comes to loans especially bank loans, you might have to provide collateral so you can borrow. It often takes the form of property or liquid money that your lender will use in cases where you will default your loan.
If you are planning on defaulting your loan, you are risking losing your collateral. However, this also lowers the risk that your lender is facing and can help you get better rates or qualify you for a loan.
Limit any of your outstanding debt
Just like your income, your debt-to-income ratio (DTI) pertains to how much you can borrow. It also shows the lenders that you can pay every month but also lets them know that you are responsible when it comes to managing your money.
What does a high DTI mean? If you have a high DTI, this means that you are using too much of your money to pay off your other loans. As such, you need to pay some of your debts first especially if you find that your DTI is quite over 43% already.
Conclusion
All in all, there’s no complete guarantee that your personal application is going to be approved. Even if you are going to meet the criteria that are listed by your lender, he or she can still reject your application. Follow some of the tips listed above to avoid getting your personal loan application denied.