Top Reasons Why Loan Applications Get Denied

Don't freak out if a bank or credit union turns you down for a personal loan. There's nothing more disheartening than having to deal with a financial crunch only to have your loan application turned down. But the truth is that it really happens rather often.

It's important to remember, first and foremost, that being turned down for a loan has nothing to do with who you are. Lenders are obligated to establish base requirements for taking on any loan and due to this, you can be rejected if you don't quite meet their requirements. It doesn't mean that you lack any financial acumen or responsibility on your part although it would also be helpful if you can make the necessary modifications to your budget to ensure you can satisfy their requirements.

This can be possible if you will get yourself familiarized with the most typical causes for a loan application to be denied by a financial institution.

Bank Loan Rejection Reasons for Personal Loans and How to Avoid Them

Lenders in the Philippines that provide secured bank loans evaluate applicants based on their financial data and the results of credit checks and background checks. However, the bank or private lender usually doesn't tell the cause of why a borrower is denied.

In order to help you up your approval game from lending institutions and avoid loan rejection, check out some of the most common reasons why loan applications are declined:

1. Low credit score

When applying for a personal loan, a strong credit score is essential. The rejection of a loan application by a bank may be a devastating blow to the financial life of many borrowers, even those with high incomes and secure employment.

But they fail to see that a number of other elements also play a significant role in determining whether or not a loan application is ultimately granted. In order to decide whether you are creditworthy, banks check your credit report and credit score. In particular, your credit score reflects your history of borrowing habits, such as missed payments and overextended credit.

In addition, a borrower's credit score might also take a hit if there are mistakes in their credit report. It's possible, for instance, that past-due loan payments are being mistakenly flagged, or that closed credit card or loan accounts are still being shown as active. If your loan application was denied by the bank, it's a good idea to double-check your credit record and score to make sure nothing is wrong. If you want to increase your future eligibility for a personal loan, clearing your negative credit history is a must.

2. Not meeting the personal loan application requirements

You may not have been approved for a personal loan because you did not fulfill the criteria set out by the lender, since different financial institutions in the Philippines have different standards for their varieties of personal loan approval.

For instance, some financial institutions insist that you already have a credit card with them or another financial institution before you can apply for a personal loan, while others require that you fulfill all of their prerequisites to avoid personal loan rejection.

3. Personal loan rejection due to incurring unmanageable debt

Do not apply for a personal loan if you have a lot of other debts, especially from unsecured loans, that need to be paid off first. If your debt-to-income ratio is too high, the bank will likely reject your loan application.

If you want to prevent personal loan rejection reasons, keep your debt-to-income ratio at 36% or below. This ratio is calculated by comparing the borrower's gross monthly income to the borrower's total monthly debt obligations such as credit card, unsecured loan, and loan amounts. If it's too high, put off loan applications until you've paid off some of your other debts.

4. Details are missing or inconsistent

It is the personal loan lenders' responsibility to confirm that the borrower's financial and personal details are accurate and complete. If they are unable to validate your information, your application for a personal loan may be delayed or even denied. Additionally, be on the lookout for any calls the bank may make to double-check your information. By doing so, you lower your probability of having your application for a personal loan declined.

5. Failure to meet the minimum income requirement

Even if you have a large sum of money in the bank, it makes no difference. A personal loan application will be denied by a bank or credit union if the borrower cannot prove that he or she earns at least the required minimum payment each month. They always demand that borrowers have a certain minimum yearly or monthly income so make sure that you don't have insufficient income before applying for a secured loan.

Be sure that you meet the minimum income criterion of the lender you're applying with before signing the application. Whether you didn't verify the criteria with the bank before applying, please do so now to determine if your income papers match their requirements.

6. Overextending one's borrowing capacity

You applied for a loan, but it was denied since the money you requested is too much than your monthly loan repayment capabilities. Your "desired loan amount" on the application might be one of the reasons you were denied a personal loan since you may have requested more money than you could reasonably expect to repay.

Refrain from doing this again if you ever find yourself in need of a personal loan. To determine your monthly payment and interest rate for your personal loan, use the lender's personal loan online calculator. The tool will let you know how much of a loan you may qualify for depending on your income. Even if you believe you are eligible for a larger sum, you should submit an application for a smaller amount on your next attempt to guarantee approval.

7. History of job instability

The lender's minimum income criteria may not be the deciding factor in granting approval. Private lenders and banks have similar requirements for minimum lengths of employment or lengths of service. This is quite understandable as lenders want confirmation that you can have consistent monthly payments for the whole duration of the personal loans.

Obviously, it doesn't assist your case as a responsible borrower if you've had a lot of job changes, a protracted work hiatus, or a questionable employment record. Joint personal loan applications and applications for individual loans often need evidence of work for a year or more. So, if you want to apply again, you should endeavor to keep a job or other source of reliable income.

Pave the Road for Home Investment with Good Personal Finances

There are many grounds why Filipinos apply for a personal loan. With you already being aware of the various personal loan rejection reasons in the Philippines, it is now time for you to build satisfying credit reports and a good credit score.

Meeting the standards of loan eligibility criteria, avoiding poor credit score as well as credit card debt, and building good personal finances can help you start the most lucrative yet low-risk investment in the country, purchasing house and lot in the Philippines!

The improvement of your financial situation can give you many benefits including fast approval for a bank financing scheme when you buy an affordable house and lot for sale from Lumina Homes. This property can now be converted into an extra passive generating income by renting it out as an apartment or as an Air BnB.

Processing your bank home loan for our affordable house and lot is quite easy and smooth as long as you meet all the standard requirements of your preferred bank. You can skip the hassle of handling your bank home loan since an admin officer will be there to process it for you.

Home buying is not only made more affordable but also much easier and more convenient with Lumina Homes!