Reasons for Personal Loan Rejection: Why Banks Decline Loan Applications
Published: September 7, 2021 | Updated: September 21, 2021 | Posted by: Venus Zoleta | Personal Loan
Rejection of any kind is hard to accept—more so if it involves money. Case in point: getting your personal loan application denied. Your time and effort spent preparing your requirements and waiting anxiously for the loan approval all just went to waste. It makes you want to demand an explanation from the lender. What could be the reasons for personal loan rejection, you wonder.
But no need to go berserk to try and reverse the lender’s decision. Cooler heads always prevail, so try to find out why your personal loan application was rejected and how to correct the problem.
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Top 7 Reasons for Personal Loan Rejection
Personal loan providers in the Philippines base their credit decisions on a borrower’s financial information and their assessments from credit investigations and background checks. If you received a no from a lender, it’s likely due to the any of following reasons.
1. Insufficient Income
It doesn’t matter if you have enough money on your account. Banks and lending companies will reject your personal loan application if your income can’t sustain the monthly loan repayment. They always require borrowers to meet a minimum annual or monthly income requirement.
Before you sign that application form, check the minimum income requirement of the lender where you filed your loan application. In case you forgot to check the requirements before applying, do it now and see if your income documents matched the bank’s criteria.
For example, to qualify for a Citibank personal loan, you need to have a gross annual income of at least PHP 250,000 (PHP 20,833 monthly).
To be eligible for an online loan like the EasyRFC Multi-Purpose Loan, you should be earning a basic monthly salary of at least PHP 18,000 (PHP 216,000 annual income).
2. Unstable Employment Record
Meeting the lender’s income requirement alone doesn’t guarantee an approval. Banks and private lenders also require a minimum employment tenure or length of service. They need an assurance that borrowers can sustain their loan repayments during the entire loan term.
Obviously, frequent job changes, a long employment gap, or a dodgy employment record doesn’t really help your case as a responsible borrower. Most banks require applicants to be employed for at least one year. So do your best to maintain a job or a steady source of income and try applying again.
3. Requesting a Higher Amount Than What You Can Actually Repay
Simply put: you asked for too much, which was why your loan application was rejected. The number you provided in the “desired loan amount” field of your application could be one of the reasons for personal loan rejection. You might have asked for an amount that’s too high compared to what you could actually pay back.
Avoid this mistake the next time you apply for a personal loan. Use the lender’s online loan calculator to compute the personal loan interest and monthly payments. This allows you to check how much you can realistically borrow based on your income. Try and apply for a lower amount on your next try, even if you think you’re qualified for a higher one.
Read more: 13 Personal Loans with Low Interest Rate in the Philippines
4. Bad Credit Score
A good credit standing is critical to a successful personal loan application. Many borrowers with high salaries and stable jobs get the shock of their lives when banks reject their loan applications.
What they don’t realize is that other factors greatly affect their chances of getting approved for a loan. Banks will look at your credit history and credit score[1] to determine if you’re worth lending money to. Your credit score, in particular, reflects your past behaviors as a borrower, like loan defaults and maxed out credit cards.
In some cases, errors in credit reports cause a borrower’s credit score to drop. For example, loan payments could be incorrectly reported as late, or closed credit card or loan accounts still show up as open. So if the bank rejected your loan application, check your credit score and credit report for errors. It’s important to clear your bad records to improve your chances of personal loan approval in the future.
5. Having Too Much Debt
If you’re currently knee-deep in any type of debt, it’s best not to apply for a personal loan to begin with. Once your bank finds out that your debt is too high relative to your income, consider your application denied.
Keep your debt-to-income ratio low[2] (12% or lower) to avoid getting your personal loan application rejected. To compute this ratio, divide your monthly debt (outstanding credit card and loan balances) by your gross monthly income. If it’s too high, consider postponing your loan application until you’ve paid off at least a portion of your debt.
6. Incomplete and Inconsistent Details
Who knew a simple mistake on your application form can ruin your chance of a loan approval? That’s why it’s important to double-check every detail you submit.
Lenders need to ensure consistency and completeness of personal and financial information from borrowers. If they can’t verify your data, the processing of your personal loan will be delayed or result in a rejected loan application. Also, stay alert for follow-up calls from the bank for verification of your data. This way, you lessen the odds of a personal loan rejection.
7. Failure to Meet Eligibility Requirements
Did you read the loan eligibility requirements of the lender? Among the possible reasons for personal loan rejection is the fact that you failed to meet some specific requirements.
Some lenders in the Philippines have unique requirements for their personal loan products. For instance, before you apply for a personal loan with Citibank, you need to have a credit card from Citi or any other bank.
When you apply for a BPI personal loan, your home should be near a BPI branch.
My Loan Application was Declined. When Can I Apply Again?
You can apply for the same personal loan or another loan after a certain number of months since the initial rejection. When you can apply again after getting declined will depend on the reapplication period set by the lender.
For example, if you’re declined for a CIMB personal loan, you can re-apply after three months from the date when you’re notified about the rejection.[3]
If the lender doesn’t specifically state when rejected applicants can apply for a loan again, it’s recommended that you wait for three to six months. This will give you enough time to fix the issues that caused the rejection of your loan application.
Related articles:
- Need Cash? Check These Options for Easy Loan Application in the Philippines
- 5 Convenient Ways to Borrow Money for an Emergency
What to Do After a Personal Loan Rejection
Identifying the personal loan rejection reasons is the first step you can take to improve your chance of getting approved for a loan next time.
Take the rejection as a learning opportunity to make your financial habits better, regardless of the reason. Improve your credit score, correct errors in your credit report, pay off your debts, and do anything you can to prove you’re a responsible borrower.
And when you’re ready to file another personal loan application, make sure you meet all eligibility requirements and submit all supporting documents. A rejected personal loan doesn’t mean you can’t ever apply for one anymore. You can always try again some time.
Final Thoughts
Getting your personal loan declined is a stressful and frustrating experience. For others, it could be discouraging. But knowing the possible reasons for personal loan rejection can help you put things in perspective.
Sources:
- [1] Why credit score is important to entrepreneurs (ABS-CBN News)
- [2] Debt-to-Income (DTI) Ratio (Investopedia, 2021)
- [3] If I was rejected for a loan application, how long before I can re-apply for a CIMB Personal Loan again?
Venus is the Head of Editorial Content at Moneymax, with 15+ years of experience in digital marketing, corporate communications, PR, and journalism. She invests in stocks, mutual funds, VUL, and Pag-IBIG MP2. Outside of work, she’s crazy about cats and Korean dramas. Follow Venus on LinkedIn.
