8 Common Reasons Lending Firm Rejects Your Loan Application
Once in a while, we are faced with financial difficulties. Sometimes, it’s inevitable to take out a loan from the bank or any other lending firm. This loan can be used for various reasons – home improvement, education, car loan, personal use, and more.
However, there are times that the application denied and we have no clue as to what happened. Keep in mind that lenders, especially the banks, are cautious enough when evaluating one’s loan application. Most of the time, as borrowers, we overlooked things when applying and filing loan application. Being rejected is a serious matter especially if we are in dire need of money because of emergencies.
Now, you’ll understand why lending institutions reject loan application. These mistakes are frequently present upon application. As much as possible, try to avoid these mistakes before applying:
Desired loan amount is relatively high
When filling in the loan application form, you will be asked how much are you applying for. If you have written a relatively high loan amount, your application will be denied. Your loan amount should be equal or lesser to what you can afford to repay. Avoid putting loan amount that is too high so you’ll get approved. You can use online calculator to find out how much you can borrow based on your monthly or annual income.
Bad credit history
The lending firms’ top priority when approving loan application is the credit history of the borrower. If you’ve paying default payment, it’s likely that you have a low credit score and some negative remarks on your report. It shows bad track record for the bank and thus, rejecting your loan application. If your credit history is not enough, they will likely deny the application. Credit history is everything when you apply for loan.
Lenders such as banks want to make sure that the borrowers can do the loan repayment on time. They require borrowers like you to meet their minimum monthly and annual income. If you have exceeded the minimum amount, it’s likely that they will approve your loan application. If you’re self-employed, they will require much higher monthly income. Always check the lending firm’s income requirement before applying and submitting your application.
Doesn’t have enough personal savings
A big part to get your loan approved is your own bank savings. If you have more than enough savings, it goes to show that you can repay the lender after the loan take out. Most of the banks and lending firms require that you have a minimum of five percent of your loan as compared to your savings. Before filing your loan application, inquire how much do they require for personal savings for a certain loan application.
Inconsistencies in your application details
It’s really recommended to take your time when completing your application form. One simple mistake will ruin your chances of getting approved. Financial institutions including the banks are required to verify the consistency and completeness of the borrower’s personal and financial information. If the information stated in the application are not verifiable, it can cause delay or rejection in your application. Before submitting your application, you should double check all the details to see if you need to change something or forgot to add more.
Too many loan applications and rejections
Did you know that your credit report or score is also affected each you apply for loan and gets rejection? Every time you file for a loan, the lender will check your credit score and credit report. The more you file loan applications, the more likely that you will make your credit score go down. If you apply continuously without good reasons, it will appear that you’re too desperate for money.
Piled up debt
Keep in mind that banks and other financial institutions will check other debts of potential borrowers and they will compare it to the income stated. If they find out that you have too much debt on your account or it’s too high compared to your monthly income, they will definitely deny your loan application. The recommended ratio of debt to income should be 12 percent or lower so you can avoid loan rejection.
But how will you know if your debt ratio is 12 percent or lower? Divide all your monthly debt by the gross monthly income you receive. If the result Is too high, you might consider rescheduling any cash loans you’re planning to get.
Unsteady employment record
Banks and other lending institutions consider the ability of borrowers to pay them back. If your employment record shows instability, your loans might not get approved. The financial institutions need the assurance that you will be able to repay the loan throughout the entire loan term. Most of the banks and lending firms require a certain tenure or length of service in the company to be considered. They will require you to submit a certificate of employment indicating your tenure of employment. Moreover, keep in mind that switching jobs frequently will give signal to lending companies that you’re not having a consistent income that might delay your loan repayment.