Rejection of any kind is hard to accept—more so if it involves money, like getting your personal loan application denied. Your time and effort spent preparing the requirements and waiting anxiously for the loan approval all just went to waste. It makes you want to demand an explanation from the bank, lashing out like that memorable scene from a local movie.
No amount of pleading or going on full beast mode would reverse the bank's decision. You can only learn from it, find out why your personal loan got rejected, and correct the problem. In doing so, you'll be better prepared to apply again for a personal loan in the future.
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. Of course, banks have to ensure the borrower's ability to repay a loan before giving their approval.
If you got your personal loan rejected by the bank, it's likely due to one or a combination of the following reasons.
1. Insufficient Income
No matter how much money you have in the bank, you won't be approved for a personal loan if your regular income cannot sustain the monthly loan repayments.
Banks require borrowers to meet a minimum annual or monthly income requirement. This is usually higher for self-employed borrowers than salaried employees. For example, to qualify for a BDO personal loan
, you have to be earning at least PHP 400,000 (self-employed) or PHP 120,000 (employed) per year.
Personal loans from BPI
have higher minimum income requirements. Self-employed applicants must have a monthly income of PHP 50,000 (PHP 600,000 annually). Employees are eligible if they earn PHP 25,000 monthly (PHP 300,000 annually).
Meanwhile, if you're applying for a personal loan from Citibank
, you're eligible if you're earning PHP 250,000 yearly (PHP 20,833 monthly).
Check the minimum income requirement of the lender where you filed a personal loan application. If it doesn't match the salary on the income documents you submitted, then you already know why the bank denied you of a loan.
2. Unstable Employment Record
Meeting the bank's income requirement alone doesn't guarantee a personal loan approval. An unstable job or source of income can lead to a loan denial. Banks need an assurance that borrowers can sustain their loan repayments during the entire loan term.
This is why lenders require a minimum employment tenure or length of service. They find that information on the borrower's certificate of employment.
To be eligible for a BDO personal loan, you must be employed for at least one year. BPI and HSBC require a minimum of two-year tenure for salaried employees. Self-employed borrowers must have a business operating for at least two or three years to be eligible for BDO and BPI personal loans.
3. Too High Loan Amount
The figure you provided in the "desired loan amount" field of your personal loan application could be the culprit of your loan rejection. You might have asked for an amount that's too high compared to what you could actually afford to pay back.
Avoid this mistake the next time you apply for a personal loan. Use an online loan calculator
to check how much you can realistically borrow based on your income.
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 life when banks decline them for a loan. What they don't realize is that factors other than income and job stability greatly affect one's chances of getting approved for a loan.
Banks look at your credit history and credit score
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.
Got your personal loan rejected? Check your credit score and credit report
for errors. It's important to clear your bad records to improve your chances of a personal loan approval in the future.
5. Too Much Debt
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When you apply for a personal loan, the lender will check your debt against your income. If it finds out that your debt is too high relative to your income, your personal loan application will surely be denied.
Keep your debt-to-income ratio
low (12% or lower) to avoid a rejection from the bank. To compute it, divide your monthly debt (outstanding credit card and loan balances) by your gross monthly income. If it's too high, consider postponing your personal loan application until you've paid off at least a portion of your debt.
6. Incomplete and Inconsistent Details in Your Personal Loan Application Form
A simple mistake on your application form can ruin your chance of getting approved for a personal loan.
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 rejection.
When you apply for a personal loan in the Philippines
, it's important to double-check every detail you submit. Also, be on standby for a call from the bank for verification of your data. This way, you avoid having your personal loan rejected again.
7. Failure to Meet Eligibility Requirements
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Some lenders have specific and unique requirements for personal loans. Before you get a personal loan with Citibank, for instance, you need to have a Citi credit card for at least six months or a card from another bank for at least one year. When you apply for a BDO or BPI personal loan, your home should be near a bank branch.
Getting your personal loan rejected is nothing short of heart-breaking. But the experience is a learning opportunity regardless of the reason. Improve your credit score, pay off your debt, and do anything you can to prove you're a responsible borrower. And when you're ready to file your personal loan application
, make sure you meet all eligibility requirements and submit all supporting documents.