You searched for a personal loan that is affordable for you. You applied and anticipated a thumbs up, but before you know it you are greeted with an “unfortunately your loan application has been rejected” which can dampen anyone’s mood. But if you are left scratching your head as to why your application was rejected here are a few reasons.
1. Your credit file
When applying for a loan the first place most lenders will look at to help them decide whether they should approve your loan or not is your credit report and credit score. This basically shows them all the loans and debts that you have taken out, and whether you have managed to meet payments on time or missed payments. They will also be able to see if you have been declared bankrupt before or whether you are on the tipping point of falling into a debt cycle which could affect your ability to pay back the loan. Checking your credit report will help see what needs to be fixed before heading to a lender.
2. Your employment record
When applying for a personal loan it is important to check the eligibility criteria to avoid having your application rejected. During the application process, most lenders will require that you submit documents that show proof of income. Some might require 3 months’ worth while others could request at least 2 years’ worth of statements if you are self-employed. This is to safeguard lenders from giving you a loan that you are unable to pay back due to your financial situation, and it is also there to protect you from getting into debt.
3. Not falling into the age limit
Most personal loans require that the applicant is of the legal age of 18 years before applying for a loan. This means that even if you have a couple of weeks to go before you turn 18, you will have to wait until then. Co-signers also have to be 18 years old and above to apply for a personal loan.
4. Applying too many times
You might have seen a fair share of rejections when it comes to applying for a personal loan. The immediate response might be to try elsewhere, but this could affect your credit report and also increase your chances of being rejected. Applying for a personal loan in a short space of time can give lenders the impression that you are not credible enough to lend a loan to. To avoid jumping from one lender to the next you could consider asking a lender why your application has been rejected and proceed to correct these problem areas to improve your chances.
5. Career instability
Borrowing a loan is all about proving that you will be able to meet your loan repayments without defaulting on it. If your career has been on the rocks and you haven’t been able to hold a job for more than a year or two a lender is likely to reject your application. This also applies to freelancers.