Have you clicked “Apply for Personal Loan”, completed the whole form, provided the necessary information, only to be rejected and never really been sure why. Below is a list of the most common reasons why you’ll get rejected for a personal loan.
#1 Credit Enquiries
If you’re not sure what a credit score is take a quick read of our previous post “5 Simple Ways to Improve Your Credit Score”. A low credit score can have a big impact on your chances of getting a personal loan and one of the biggest causes for a low credit score are the number of recent credit enquires you’ve made. Too many credit enquiries in a short period of time will have a negative effect on your credit score as it gives a perception of financial desperation. While it can be tempting to shop around for the best deal, or quick money, make sure you’re careful not to rack up credit enquiries.
Having multiple applications on the go, then picking what you perceive to be the best one might seem like a good idea but ultimately, it’s going to lower your credit score and can have serious implications on your ability to access credit in the future. Instead, do your research before applying and then when you’ve found the lender that suits your needs proceed with the application.
#2 Income Type
Income is another common reason so many people are knocked back when applying for a personal loan. Income can be a complex beast as it can come from a number of different sources. Before applying for credit always ensure the income you receive is income that can be verified. That is to say you need the relevant documents to make sure you can prove that it is your income and that it is taxable income.
Furthermore, even though you may earn income, is it a type that is acceptable to lender you are applying with? There are types of income (e.g. centrelink benefits) that some lenders will not accept, so be careful if a large part or all of your income comes from social security benefits, foreign income or investments. Ask the lender before you apply if your source of income is acceptable. If not, then you have saved your file against another credit enquiry.
#3 Employment Type
The type of employment you have can also have an impact on your chances of getting a loan. Lenders generally consider permanent full time or permanent part time borrowers safer to lend to than say casual, contractors or self-employed borrowers. This is due to the fact they receive a set minimum number of hours and are also guaranteed annual and sick leave. A casual customer on the other hand will have hours that can fluctuate and if they need a holiday or the day off due to sickness they unfortunately don’t get paid!
Furthermore, some online personal loan lenders will require you to be in your employment for a certain period of time before it can be accepted. It is always a good idea to check if there is a minimum period of employment required for your loan to be accepted. In particular casual employment and self-employment often have more stringent rules around length of employment due to this income source being considered less predictable.
While some people will receive a default on their credit file due to circumstances out of their control, such as financial hardship, others will receive theirs from situations that are entirely avoidable! A common source of defaults are disputes over phone bills and energy bills. You receive your bill in the mail and much to your shock it’s triple the usual amount. You call the company but they just won’t listen. In anger you decide you’re not going to pay it.
You close your account and move to a competitor. The company sells your debt and you get a default on your credit file that will take at least seven years to get removed! Now every time you apply for credit this stops your application from being approved. While it can be painful to have to pay a debt you believe to be unjust its better for your credit file if you pay it, then dispute it, and try to get the money back
#5 Lack of Transparency
Be honest when you go to a lender when you want to apply for a personal loan. Dishonesty will get you nowhere. If you are hiding credit cards from the lender they’ll find out about it. In the case of your repayment history being bad, let them know as they may be able to advise you before a credit enquiry gets submitted on your credit file whether it’s worth your time applying. If you’re honest about your circumstance the lender may be able to put in place a finance solution that gives you what you need and makes your overall financial circumstances easier. If a lender finds out you’ve been lying during your application then they will decline you on the spot.
So next time you consider pushing that “Apply for Personal Loan” button, be sure to put yourself in the best possible position to be approved. If you follow the above advice you’ll certainly give yourself a better chance of preserving your credit score and finding a loan suitable to you and your circumstances.
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Source: OurMoneyMarket Lending Pty Ltd ABN 64 605 231 669 Australian Credit Licence 488228.