Have you applied for a personal loan only to be refused by the lender? Although it’s not a nice feeling, you’re certainly not the only one who has had a loan application turned down. There are several common reasons why you might be declined a personal loan, and although some of them may be indicative of an unhealthy financial situation, others may simply be due to an oversight on your behalf or your particular circumstances.
If you’ve been declined a personal loan, make sure you know the reason why, as every personal loan application you make counts as an enquiry on your credit report. Make too many unsuccessful enquiries and that will turn into a red flag.
So, what are some of the common reasons why you might be declined a personal loan?
- You’re self-employed
Being self-employed can bring numerous benefits, but it can also have some unexpected drawbacks. Many lenders like to see that you are in full-time employment or have a secure contract with plenty of time left to run, as that provides added reassurance that you’ll be able to repay the loan.
For that reason, if you are self-employed and have a fluctuating level of income, some lenders may think twice about offering you a personal loan. However, not every lender will be so reluctant. For example, the short-term lender Wonga states it will not explicitly decline a borrower just because they’re self-employed, although you will have to provide evidence that you’re able to make the minimum monthly repayments.
- You have a bad credit score
Even borrowers with high salaries and stable jobs can be rejected for a personal loan. What many people don’t realise is that even with a good level of income, lenders will be put off by an adverse credit record that shows unreliable behaviour as a borrower. Maxed out credit cards and loan defaults will all contribute to a bad credit score. Thankfully, there are steps you can take to repair your credit score.
- Your application is inconsistent or incomplete
You must provide all the information you are asked for on your personal loan application and ensure that all your details are accurate and up to date. If you don’t double-check important information or provide comprehensive responses to the lenders’ questions, there’s a far greater chance that your loan application will be rejected.
- You don’t meet the eligibility requirements
Some lenders are quite specific about who they lend to, and if you don’t meet their eligibility criteria, the likelihood is you’ll be declined. Make sure you carefully read the lender’s criteria before you apply for a loan to save you time and reduce the likelihood of a refusal. The good news is that there are plenty of other lenders out there that will accept your loan application even if you have bad credit. You just have to find them.
- The loan amount is too high
On the loan application form, you’ll be asked to enter your desired loan amount. The temptation might be to borrow a bit more than is absolutely necessary, but if you enter an amount the lender believes you might struggle to repay, you’re likely to be declined. Instead, only borrow the money you need and use a loan affordability calculator to check it’s an amount you can comfortably afford to repay based on your current income.
Have you encountered any other reasons for a loan application refusal? Please share your experiences with our readers in the comments below.