3 Reasons Why Your Loan Might Get Rejected – What to KnowAug 15, 2019
Ever got your loan application rejected? There are three common reasons that this can happen. You either have no credit history, have a bad credit rating, or a low debt-to-income ratio. Whatever it is, it can be very annoying, especially when you need the loan to pay off an emergency.
When your application gets denied, you might not know what to do next. Do not worry, because we are here to help you.
You can start by determining the reason why you were denied. Then, find out how long you must wait before re-applying for a loan. While you’re at it, you can research the necessary steps you can take to prevent the same thing from happening ever again. Try to narrow the gap between what you need and what the lender is willing to do.
Here are three likely reasons why you are being denied credit:
1 – Bad or No Credit
Whenever you want to borrow money, the lenders will look at your history. This is usually displayed as scores whenever you apply for a loan. They took a look at your borrowing and repaying trends.
If you didn’t borrow much or have a bad credit rating by default, you might get denied because of your credit. If your credit rating is what denied your application, the lender will be required to tell you.
They will explain that your credit history worked against you and provide a reason such as too many defaults along with it. The notice should also show you how to view your credit reports, which are usually free. The good news to you is that you can improve your credit score.
2 – Not Enough Income
Lenders want to make sure that you can pay back your debt before they accept your request. Some loans like homeowner loans require calculations to be done to see if you can pay. The most common type of calculation is the debt-to-income ratio to prove that you can pay off the loan. How much you earn each month is pitted against how much you have to spend on debt repayment. If it doesn’t look possible, your application will be rejected.
3 – Other Issues
There are many other reasons why you can get rejected as well. Sometimes, an appraisal that is too low and doesn’t justify the loan size will get denied. Whenever you’re applying for business loans, lenders will look at your personal credit. Unless you are willing to secure the loan with personal assets or that your business is already well-established, chances are low.
Re-Applying for Loans
Don’t go back applying for more loans while you’re upset. Take some time and cool off. An excellent way to minimize the chances of getting denied is to act as a lender. Check for any errors or red flags in your score and find out if you can pay. You can even ask lenders to see if there are any problems in your credit report! They will willingly explain it to you on what’s essential and what isn’t, and will also tell you how long you’ll have to wait. If you want to know more about your debt-to-income ratio, ask them to show it to you.
Head to your local credit union and ask for any help. They will gladly assist you in preparing another application. They may even tell you if you are eligible for a loan. All the best on your next application!
If you’re looking to apply for a personal loan in South Africa, get in touch with us today to see how we can help.