Due to various financial constraints, people are always visiting financial institutions to look for personal loans. There are different types of loans, but for today, we will focus on personal loans.
A personal loan is borrowing by individuals seek to meet their needs or buy small assets and at the end of the agreed period, the person pays the loan and interest. Other people also use a personal loan to make small investments. Sadly, you can have your personal loan application rejected for many reasons. We will discuss them here so that you can avoid them when making an application.
1. Your Income is Below the Required Minimum
Before you qualify for a personal loan, the bank must be convinced that you can repay and still meet your other needs. Therefore, there is a minimum amount of income that you must have in relation to the amount that you applied. In most cases, they check the repayment instalments and relate that to the monthly income. If your monthly income is not consistent, this could be even a bigger challenge to hinder the success of your personal loan. In some countries like the Gambia and Nigeria, banks will not want a repayment that will be more than 33% of your monthly income.
2. You Have Other Loans
Some financial institutions will shy off from giving you an additional loan if you already have other loans. One loan may not hinder you, but too many other loans can be a problem.
This means that you have a higher chance of defaulting on the current loan you are applying for. Although they may not tell you this, it is also a sign that you have a problem managing your personal finances, and that is why you are in too much debt.
3. Your Credit Score is Poor
It is common knowledge that financial institutions will look at your credit history before they extend any loan to you. The minimum score may differ between various institutions. A poor credit score means that you have either previously defaulted on repaying or have been making late repayments of loans and bills. So it is important for you to understand how to boost or maintain a good credit score. You can visit the Boost Credit website to get good insight on how to boost your credit score.
4. Making the Wrong Application
It may sound less important, but if you make an application for the wrong loan, you are likely to get a rejection for it. As mentioned earlier, there are different types of loans, and all have varying requirements. For instance, applying for a personal loan under the business category will lead to automatic rejection. Thus, one has to be keen on the forms that they use to make their application. Also, you can apply through an agent who offers the appropriate guidance throughout the procedure.
5. No Collateral
The last reason why your personal loan was rejected is lack of collateral. Most lenders will ask for an asset, guarantor, or any other form of collateral to reduce the chances of losing money in case you default or if anything else that makes it impossible to repay the loan happens. Check carefully to ensure that you have collateral to cover you on this.
These are some of the main reasons personal loans get rejected by financial institutions. You can still check for others, through asking your lender to make sure that you comply on your next application.