Getting your personal loan application declined can really shatter your plans and stress you out. But the best thing to do after going through such an ordeal is to move on from the situation. Part of moving on is finding out what could have caused the situation and what you can do better next time.
Understand that loans come with some requirements, and failure to meet them gets your application declined. Read this article to understand five common reasons why your application was denied.
1. Inaccuracies in Your Credit Report
Lenders will always check your credit report before giving you a personal loan. Unfortunately, your report might have some errors you’re not aware of hence impacting your loan application. Common errors include outdated personal information or debt listed more than once.
It’s advisable to check your report from time to time to correct any inaccuracies that may occur. If you find any wrong information in the report, you should have them amended before you even think of applying for a loan.
2. Low Credit Score
It’s impossible to get a personal loan with bad credit from big lenders. Whether you’re applying for a personal loan or a mortgage, you need to work on improving your credit score before anything else. Every lender has their credit score parameter, and if yours is too low, your loan will be declined.
Ensure you get a current copy of your FICO score to understand where you stand before applying for a loan. Also, consider asking your lender about their minimum credit requirement to qualify for a personal loan.
3. Low Income
Your income determines your capacity to finance your loan. A low income or unstable employment can get your loan denied.
Lenders can also check your debt to income ratio when processing your personal loan. If your bills are high compared to your income, you might not get a loan with a specific lender.
The best thing to do in this situation is to consider smaller loan amounts in line with your income. You can also create a budget to figure out the amount you’re getting versus your expenditure. Have thorough scrutiny of your financial situation and know how to approach your loan application.
4. Large Amounts of Debt
If you borrow too much, it will reach a point where you’ll no longer get additional loans. Well, getting a personal loan can be a way to consolidate all your debts, but this won’t be possible if you’re drowning in huge debt.
Lenders always check your income versus a percentage that goes towards paying your debts. If your debt to income ratio is not promising, you won’t get a loan. Consider reducing your loans before you think of applying for another.
5. Your Reason for the Loan Is Unsatisfactory
Just because you qualify for a loan doesn’t mean you can make an application and get approved. While you can use a personal loan to cover anything, sometimes lenders will require a loan to be of specific expense. You must convince them that you’re in dire need of that loan or risk getting denied.
If your reason for borrowing is not in line with the specific lender’s requirements, you’ll get your application declined. Make sure you’re clear enough about your reason for borrowing to improve your chances of getting approved for a loan.