Things you can do to improve your chances of personal loan approval
There’s no way of knowing whether you’ll be approved for a personal loan. Not only that, but each personal loan application counts as an inquiry on your credit report. Too many inquiries can lead the next lender to see this as a red flag, which may be enough to reject you again. Herein lies a big obstacle.
There’s no magic trick to getting approved for a personal loan, but there are some little-known ways you can avoid the rejection pile. Read on to find out how you can avoid your personal loan application being rejected.
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7 most common reasons personal loan applications are rejected
- Bad credit history. While “bad credit” is usually pooled into one, there are varying levels of bad credit. For example, you may have never defaulted on any loans or credit cards, but you might have applied for a lot of loans in the past. Check your credit score to see where you stand before applying.
- Insufficient income. The lender can’t approve your application if they find that your income won’t sustain your monthly repayments. Lenders usually have a minimum income you need to earn in order to be eligible for the loan, so check the eligibility criteria. If not, work out what repayments you’ll need to make and if these will be manageable on your income.
- Dubious loan purpose. Check that you’re able to finance what you need to with the loan you’re applying for. Many loans come with restrictions as to how the funds can be used. For example, secured loans can only be secured by certain assets, and car loans usually have an age restriction on the vehicle your purchasing. Also, if your lender finds out that your loan purpose isn’t credible, your chances of loan rejection could be quite high.
- Incorrect details. Lenders will usually verify the details you put in your application, and they may reject your application if they find inconsistencies.
- Unstable employment or insufficient employment history. Lenders are very meticulous about the stability of your job. Quite a number of lenders insist that you should have a stable job, otherwise they may reject your loan.
- You hold too many loans. If you’re currently holding several loans, this could give a lender cause to reject you.
- Low value of secured assets. Lots of lenders have restrictions on the type of asset you can use as collateral for a secured loan, so if your asset doesn’t meet these requirements your loan could be rejected.
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7 tips to avoid your personal loan application being rejected and increase your chances of approval
You’ve seen the reasons your personal loan application may be rejected, so how do you avoid these?
- Check the credit requirements. You should check what credit rating your lender requires, and then see if you meet them. If you’re required to have good credit, it usually means no negative listings on your file. If you’re unsure, it’s best to ask the lender before you apply. The majority of lenders have online chat services that can offer assistance. As previously mentioned, you can check your credit score for free to get an idea of your credit position.
- Find out the minimum income requirements. Each lender will have a different minimum income requirement, and this minimum may also change depending on the loan type you’re looking at. The minimum income for personal loans is listed on finder.com review pages, so you can confirm this before you apply.
- Ensure your loan purpose is allowed. Check with the lender to see if your loan purpose is okay. If you’re taking out a secured personal loan, there will be more restrictions, although you may also find limitations for other types of loans as well.
- Verify your details. Double-check your details and information before you submit your application so that the lender has no reason to reject your application on this basis. Is your application filled out entirely? Is all the information accurate? These are the type of questions that can aid you in verifying your details.
- Check that you meet the employment requirements. Do you need to have established employment at one company for a certain amount of time? Do you need to be receiving a regular income into your bank account via direct deposit? See what the lender requires of your employment and ensure you meet that.
- Don’t hold more loans than you can afford. In short, lenders want you to be able to repay your loan. The main reason lenders won’t lend to you when you have a number of loan balances already is because they don’t think you’ll be able to pay back the new loan. You could look at consolidating your loans or repaying some of them before applying for a new one.
- Check that your collateral is sufficient. See what your lender requires in terms of collateral and check that the asset you plan to use meets their requirements. If you’re in doubt, get in touch with the lender before you apply.
Important things to consider when applying for a personal loan
- Limit your number of applications. When you apply for a loan, the application is counted as an inquiry on your credit report. Too many inquiries can negatively affect your credit score.
- Keep your credit report clean. You can make this happen by paying your debts on time and not defaulting on any loans. It’s important to keep track of your financials and not take on loans you can’t afford.
- Check your credit report. You should keep monitoring your credit report and ensure the information is up to date. You may need to dispute an error on your credit report if you find something incorrect
There’s no way to completely guarantee that your personal loan application will be approved. Even if you meet all the eligibility criteria listed by a lender, the lender can still reject your application at its discretion. What you can do is avoid common mistakes that lead to personal loan application rejection and follow the tips we’ve discussed to improve your chances of approval.