Loan rejection is disappointing and discouraging. To many people, it feels like a personal insult. Apart from a fact that rejection simply feels awful, people rarely apply for a loan on a whim, they take a loan because they need it. If taking a loan is the only way you can think of to obtain funds to finance your new business, make an important purchase, or pay for car repairs – a loan refusal is a bad news.
It is even worse if you deal with some calamity, such as a need for urgent medical treatment or emergency leaking roof repair. If you count on that loan, a rejection may come as a shock and create more havoc.
If your loan application has been rejected, it means that the lender decided that you will not be able to keep up with the repayments. Loan refusals may also lower your credit score when your application is declined, so find out why and try to make any changes you can to improve your chances of being accepted in the future.
Who Qualifies for a Loan?
First things first.
Remember that you should not apply if you do not meet the eligibility criteria. Find a trustworthy lender and start from checking if you are eligible for a loan. They usually have a list of requirements that must be met – you can find it on their website. It may look like this:
Some of those requirements are essential, but you will see that some lenders are stricter than others. Always make sure that you meet these requirements first before you even apply for a loan. For example, there is no point in applying if you just got a job and you are still on probation. Most lenders will ask for proof of a stable and reliable source of income.
Make sure that all the information you provide is correct. You may feel tempted to stretch the truth to get what you want, but it is never a good idea. Using false information to get the loan approved is fraudulent – and can have serious consequences.
According to ASIC’s MONEY SMART guide, there are several reasons why your loan may have been rejected.
Lenders may use their own specific eligibility criteria, for example:
How to Avoid Having Your Loan Rejected?
If you are not sure about those criteria, you can call the lender and ask them for clarification. If you meet all the criteria and your application still gets rejected, you will know most likely there was something in your credit report. That is why it is important to check your credit score unless you know that it is perfect.
Taking all the necessary steps before you apply for a loan is the surest way of avoiding loan rejection. Unfortunately, it may still happen, even if you hope you have done everything you could to get it approved.
Being declined by one lender does not mean that your loan application cannot be approved by other lenders. You can always try another lender as they have different eligibility criteria. Just remember that multiple applications, especially over a short period of time, can negatively affect your credit score.
So instead of trying again and hoping that you will get lucky this time, call the credit provider that rejected your loan application and politely ask why your application was rejected. Make a note of all the reasons, and then address them one by one.
The most common reason for rejection is your financial situation. In many cases, it can often be corrected quite easily. Many people have a good job and a good income yet never have enough money because they have bad financial habits.
All they need to do to improve their situation is:
Remember that lenders will check your bank account statement and will see if you are overspending. They will also notice any new regular payments, for example, payments by installments, monthly memberships, subscriptions and so on.
Tracking your spending is especially beneficial. It will help you see your “spending leaks”, all these small purchases that add up over time. If you realize that you spend almost $100 every week just on coffee and café lunches that you buy at work every day, you may decide to make your own.
You feel that you are in dire straits and there is nothing you can do. After all, not everyone has a good job and a good salary, and it not always just a case of managing the money have. You may find that even in a situation that you feel is helpless, you can do something to improve it. You can contact a financial counselor who offers free assistance and check what options you have.They will help you get back on your feet and build a positive credit score so when you apply for that loan in the future, you will have a better chance of getting it approved.
Getting your rejected can be upsetting but there is no need to take those rejections personally. One of the reasons credit providers must comply with responsible lending obligations is because it protects people who are not able to protect themselves, for example, gamblers. The lenders must not lend money to a person who will struggle to repay it because it will only worsen their situation.
Understanding the loan application process, eligibility criteria and the reasons why loans are rejected will help become better at what you can control – for example, create a passive source of income to make more money and pay your bills and credit obligations on time. That will improve your chances of getting through the next loan application process quickly and successfully.