Personal loan applications are denied for various reasons and often lenders will generally tell you why your loan was rejected.
Loan providers have different loan approval factors and decision-making systems that apply to different types of customers.
So today, I want to show you the most common reasons why your application is rejected and what to do to recover.
Let’s get started.
1. Credit History
The most important factor when applying for personal loans in South Africa.
When you apply for the loan, lenders carefully evaluate and assess your application based on your credit score. If you low credit score, your loan application is likely to be rejected because there’s no proof you’re capable of repaying loans in the past.
This could be the number one reason why your loan is denied by banks and credit providers.
How to Recover: Request your free credit report from credit bureaus to review and understand where you stand. There’s probably a mistake in your report that’s affecting your score negatively.
2. Income vs Debt Ratio
It’s the loan provider’s responsibility to never over-indebt customers and only offer affordable loan amounts – nothing more.
While assessing your loan application, affordability is key to approving your loan. If they find that you have a lot of debt versus your income, they’ll have no choice but to reject your loan application.
How to Recover: Before applying for any loan, do the affordability assessment and use loan calculators to understand the costs of the loan amount you’re after before contacting any bank or lender.
3. Multiple Applications
A lot of people don’t know this but making multiple loan applications at the same time always sends a red flag to credit providers.
You sort of present yourself as desperate for the money you cannot afford. And most importantly, it’ll impact your credit report negatively.
When one lender rejects your application, it’s probably with a good reason and all other lenders will do the same. Every application is recorded by credit bureaus and lenders have access to the same report about you.
How to Recover: Always try to find out why your loan was rejected and work on that issue until it’s resolved before attempting to make another application.
4. Unverifiable Employment
Especially for first-time loan applications, lenders always verify your employment status to ensure the loan is provided to the right person.
Though you might have submitted recent payslips, if they cannot reach the company and verify you’re still working there, your loan will be rejected.
How to Recover: You could inform your HR department to expect a call from the lender of your choice about your loan application. And stop changing jobs too quickly.
5. Minimum Income Requirement
This is an obvious reason, you wanted to get a high loan amount that requires a minimum income requirement that you’re earning per month.
For example, most bond or mortgage loans require a minimum income of R14,000.00 per month. And you might be earning more than that but lenders cannot verify this information.
How to Recover: Always disclose and attach your income report with your application, should any lender requires such information.