Have you applied for a personal loan recently? Did your loan application get rejected? If so, you might be frustrated and worried about how you will manage your current finances. You might also be thinking that the lender has a specific grudge against you and hence they rejected your loan application.
But this is not the case! Your loan application might have got rejected due to several reasons. In this article, we will tell you the reasons that might be responsible for the rejection of your loan application along with ways to increase your chances of approval.
Possible Reasons Loan Application Gets Rejected
- Credit score problems
If you didn’t know this already, most lenders will check your credit scores before approving your loan application. Now, there can be several things that might have triggered issues with your credit scores:
- You may have a low credit score. This is indicative of poor financial management and shows that you have a history of defaulting on your debts.
- You may have no credit history. This doesn’t give the lender a clear picture of your creditworthiness to approve the loan applications.
- You have too many debts. If you have already taken too many debts that you can’t afford to repay, the lender might consider this as an issue and reject your loan application.
- You have made too many credit inquiries. If you have applied for multiple loans, the lender will assume that you have too many financial problems. This might be a reason for rejecting a loan application.
- You may have negative judgments. If you have been entangled in a court judgment, debt review, sequestration, the lender might reject your loan application.
If you want to know how you can increase your credit score, you can read our previous blog about ways to improve your credit score here.
- Income problems
Most lenders will conduct an affordability assessment by looking at your monthly income and employment status. For example, if you are permanently employed and have a monthly income of R10, 000 or more, the chances of your loan approval will increase.
When you have constant monthly income, the lender trusts your ability to repay the loan in due time as compared to someone who works on contracts.
- False information on the application form
When you fill the application form, it is of the utmost importance to ensure that you give the right information. If you give false or incomplete information about yourself, the lender will reject your application.
If you are wondering why this is important, the answer is that most lenders will use personal, financial, and employment information to check your credibility. If they find something that doesn’t match your application form or is false, they will reject your loan application.
- Inaccurate loan purpose
When you apply for loan online, the lender will ask you the purpose for taking out the loan. If the purpose of taking out the loan doesn’t relate to the type of loan, your application may be rejected.
For example, if you applied for a personal loan, the lender would expect you to give loan purpose as buying a home, fulfilling your wedding or holiday expenses and such. But if you are using the personal loan to buy Bitcoin or start a business, the lender might not see it as the right fit for the type of loan and reject your application.
- Don’t match the requirements
If you have researched different loan types and lenders, you might have noticed that different lenders and loans have specific requirements for making an application. If you don’t meet those requirements, your application will be rejected.
Hence, you must take note of the loan requirements and ensure that you fulfil those requirements accurately.
Ways to Increase Your Chances of Approval
Now that you know the most common reasons why a loan application might get rejected, let’s talk about how you can increase your chances of approval.
- Improve your credit score
One of the ways you can ensure loan approval is by improving your credit score. There are several ways you can use to get a score above 580 that will make it easy for you to get approval.
- You can ensure that you deposit your monthly instalment on the due date and avoid defaulting.
- If you don’t have a credit history, start by building it slowly. Take an affordable credit card and keep an eye on your expenses.
- Don’t apply for too many loans. Apply for loans that you can afford to repay. This will increase your credibility.
If you want to know more ways to improve your credit score, read our previous blog here.
- Debt settlement
Before you decide to get loan online, make sure you settle all your previous debts. Once you have settled all your debts, you will have space in your monthly budget to afford a new loan.
If you have settled your previous debt efficiently, the lender will find you credible and approve your application.
- Take a secured loan
Another way that you can increase your chances of getting a loan application approved is by applying for a secured loan. When you put a personal property or asset as collateral, the lender is interested in taking the risk. If you default in repaying the loan, the lender can take the personal property away from you. This increases your chances of getting your loan application approved.
- Find a co-signer
A co-signer can be a relative or friend who has a better credit history and income than you. This way lenders will be ensured that they can recover the money in case you are unable to repay.
The co-signer will be responsible for repaying the loan along with you. So, choose someone who has the better financial ability as compared to you.
Now, these are only a few ways that can help you improve your chances of getting a loan application approved. If you want to know more about different loan types, lenders, and more detailed information, you can visit our website to read detailed and informative blogs.
Get in touch with our team to know more about South African lenders and loans!