One of the biggest frustrations for people is applying for a loan when they are desperate for money and then getting rejected, often by the website or automated reviews, for reasons they don’t understand. There are many reasons loans may be rejected. Here are the 4 common reasons loan applications get rejected and how to avoid being one of them.
Poor Credit Score
There is a joke that you need a job to get experience and experience to get a job, and the financial equivalent is the saying you need good credit to get a loan and need a loan to get good credit. The latter statement isn’t true, since you can find loans for bad credit.
However, you can be rejected by some lenders for a bad credit score. Some companies such as Cash Lady, however, won’t reject people due to a bad credit score, and actually offer specific loans for bad credit or another alternative is to apply for a trust loan.
Poor Payment History
The interest rate of a loan covers the costs of servicing the loan, the profit margin for the company and a margin to cover the losses when someone defaults. The greater the odds someone will default, the higher the interest rate. However, lenders also look at someone’s payment history to determine their personal risk of late or no pays. If you’ve missed car payments, mortgage and rent payments or other critical bills, lenders will rightfully be worried you won’t pay them. After all, if you were late on the bills necessary to protect the four walls of your home, why would you pay them?
Late payments or missed payments with other lenders are another reason your application may be rejected. If you missed payments on your credit card, why would a new lender loan money to you only for you to transfer the risk to them? A recent bankruptcy is a red flag to lenders and a reason for them to reject you out of hand. They assume you were unable to pay those bills, so you aren’t likely to repay them.
Documentation Errors
It is amazing how many people are rejected for a loan because they haven’t kept up their documentation. The electoral registration is used to verify your identity and address. Move, get married and change your name, and your application doesn’t match the electoral registration. Update the electoral registration, and then apply for the loan again. Or review the application for errors in your name, address and other information.
Another reason you may get rejected is that you lack the documentation to prove your income. Get copies of your income tax statements or latest few pay slips to prove that you earn as much as you say you do.
Things like a lack of credit history and bad credit, a poor payment history, or a lack of proper documentation can cause rejection of your loan application. Now that you know why applications are rejected, you can make some changes to improve your chances of getting approved on your next application.