I Was Rejected for a Personal Loan – What Now?
Being Declined for a Personal Loan is Discouraging
It doesn’t have to be final though. Find out why personal loans are sometimes rejected, what you should do if your loan has been declined and how to successfully obtain a personal loan.
What to do When Rejected for a Personal Loan
What to do When Rejected for a Personal Loan
Ask the Lender Why. Financial institutions can disclose their reason for rejecting your loan so be sure to ask. Pay attention to the reason. If it’s due to a low credit score or income to debt ratio, put a plan in place to improve so that you can meet the lender’s requirements.
Obtain a Loan from Friends & Family. If you have good relationships and don’t have a bad track record of asking for money and not paying it back, friends or family may be your best option. The interest rate they give will typically be much lower than a bank’s and they will have more favorable repayment terms. Boost your chances of a family member agreeing to your loan request by offering up collateral. Learn more about how to request a loan from friends and family.
Top Reasons for Personal Loan Rejection
Top Reasons for Personal Loan Rejection
The Reason for Your Loan. Banks will want to know what you need the loan for and may reject a request outright if it doesn’t fit within their guidelines. Some loan types are not considered personal (such as business loans) so check with your lender before applying.
Lack of Collateral. Many lenders prefer, or even require, that the personal loan be secured by an asset such as property or other sources of liquid funds. If you are unable to provide collateral to back your loan, your chance of getting rejected increases.
Low Monthly Income. Lenders want to be sure you can afford to repay the loan. If your monthly income cannot cover loan repayment as well as all your other obligations, you will not be eligible for the loan. Some lenders have basic minimum income requirements so check first before applying.
Existing Loan Balances. If you have other loan obligations that result in a high proportion of debt to income, obtaining a personal loan will be difficult. A good rule of thumb is to have a Debt-To-Income ratio (DTI) of no more than 20%. Anything higher reduces your chance of personal loan approval. It is best to pay your current debt/s as quickly as possible and not have too many loans or revolving debt accounts outstanding. Your situation is even more impacted if your other loans are unsecured versus secured.
Your Job. Are you self-employed? This can increase your chances of being rejected for a personal loan unless you can prove a consistent track record of income meeting the lender’s requirements. If you are employed by a company, your occupation as well as how long you have been with your company plays a factor. Lenders prefer borrowers who have been with their employer for two years or more. Working for a reputable larger company versus a smaller one is also helpful when applying for a loan.
Application Errors. It happens. We forget to answer all the questions or mistype our TIN number on the online form. Before submitting your application, always read through every question more than once to make sure that you have answered them all completely and correctly.
Improve Your Chances of Getting a Personal Loan
Improve Your Chances of Getting a Personal Loan
Get a Co-Signer. Having a backup co-signer who has a steady income can significantly increase your chances of being approved for a loan with good terms. Just remember that the co-signer is equally responsible for the loan; so be sure to make all your payments on time so as to not ruin an otherwise healthy relationship!
Increase Your Income. Asking for and getting a raise, selling more if you are on a commission plan, or finding a new job that pays more (or even having a second job) are all ways to increase your income in order to more rapidly pay down your existing debts but also improve your income to debt ratio.
Ask For The Right Amount. Don’t ask for more than you need. Be realistic with yourself and responsible with your wallet. If you set a budget for ₱150,000, stick with it. Don’t be tempted to request a larger loan to make an additional purchase you don’t need. Be responsible with your request, responsible in paying back the loan on time (or even early) and you will become a strong candidate for the next loan when needed.
Research Lenders. Many lenders post their requirements online. This will allow you to check their terms, interest rates, and so on. There might be websites or online forums that can show you comparisons across lenders too. Doing your research can help you avoid getting a personal loan with a very high interest rate.