Applying for a loan is more comfortable now than ever. Fill in a simple online application form, and you’re good to go. However, sometimes after going through each step keenly and providing all the required details, you are told you do not qualify. The question is, where did I go wrong? Asking the lender why you weren’t approved should be your first port of call to see if you can improve your application for next time, and we have compiled 10 common reasons that you might not have been approved.

1. Multiple loan application

Applying for personal loans online from multiple lenders over a short period has perhaps the primary reason for loan rejection. When you browse everywhere, the lenders are skeptical about your payment capabilities. It is a red flag for low financial status, meaning lenders prefer applicants with good to outstanding financial credit history.

2. Previous settlement

If you had borrowed another loan in the past and failed or delayed repaying the loan for one or two reasons, this could be listed on your credit report. This means that lenders see you as a possible loan defaulter; hence they may not want to lose their money. To avoid this, ensure you clear your loans on time as they will affect future loan applications.

3. Misleading documentation

When you fill in an application and give wrong details or provide false documents, the lenders can view that as fraud, meaning they will reject the loan application. If you make mistakes accidentally, which happens sometimes, you may reapply, but chances of getting approved are minimal. That is why you should counter-check the information thoroughly before submitting it. 

4. Lack of valuable collateral

When applying for a secured loan, you must have assets to be placed as collateral for loan recovery in case you default. Some of the common assets are houses, cars, and property. Loan lenders may reject your application if the asset you have lacks enough potential to cover the loan. In some instances, they may require more assets to be added.

5. Unsteady income

One of the basic but essential question loan lenders ask is your cash flow. How much you make and how often. A steady cash flow presents a good picture of one’s expenses and debts.

6. Loan size

You may have applied for more than you can reasonably pay back based on your financial situation. Some lenders may come back to you and offer you a smaller loan amount. 

7. Debt history

When borrowing, the lenders often gauge your payment capabilities from previous debts. If you borrowed and repaid on time, then your application may be accepted and vice versa. Simultaneously, if you do not have any debt history, the lenders may be unsure if you can handle the settlement.

8. Credit score

A credit score is used to measure your creditworthiness; the ability to repay. The higher the score, the higher the chances of getting approval. However, this should not deter you because different lenders have different requirements. Be sure to look at the credit score cut-offs of each lender when applying.

9. Business lifespan

The good thing with personal loans is that you can use them for just anything, even expanding a business venture. That said, if your business is starting, the lender does not have a record of the business’s gains over time. Ensure you have evidence to back up the cash flow.

10. Co-applicant default

When applying for a joint loan, both of your financial situations are taken into account. When the co-applicant has a track record of not repaying their loans, chances are the lenders will reject your loan.

Conclusion

When Applying for a loan, ensure you avoid all the above-stated mistakes such as wrong documents and defaulting co-applicants. Each mistake made could cost you dearly, not only for the present application but even for future ones; it is advisable to be prepared for any application you make and do your homework first. 

About the Author:

Ray is a sought after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.