5 Most Common Reasons for a Loan Refusal

Borrowers who have received loan application disapproval usually wonder how loan providers assess their applications. Unfortunately, lenders do not disclose their criteria for approving or disapproving loans. It is also impossible to reverse that decision as it is considered final. You can opt to just re-submit an application form after some time or move on and find another lender.

If you are planning to apply for a loan from a lender, it is best if you would be aware of the evaluation process that banks conduct to assess applications. There is no reason to be left in the dark. You can find ways to increase your chances of having a credit approval to make sure you obtain a loan. This way, you can rest assured that your loan application would be approved prior to getting into the process. Here are the common reasons for loan refusal.

1. Lack of credit instantly prompts loan application disapproval. If you think not having debt history is advantageous, in this regard, it can work to your disadvantage. Loan providers should have evidence to prove that you can actually manage credit well and pay dues diligently. Without this record, lenders would not have an idea how you would act once they provide you credit.

2. The loan applicant has applied for credit too many times at once. It does not matter whether those applications have been approved or not. Lenders would be intrigued about possible reasons why you seem desperate to obtain a loan. They might think you are in dire straits, running from lots of debts, or funding a fraudulent activity. Thus, it is not advisable to lodge loan applications to many loan providers all at the same time.

3. A bad relationship with a bank would be assessed by that lender as a negative aspect. It may assess your existing accounts with the bank, defaults, over limit charges, cash transactions, and even complaints and disputes. If you strained that relationship in any way, you may expect the lender to take that as a setback. Again, you should not have created an impression that you have desperation for money.

4. Bad credit history counts. Of course, loan providers would conduct a credit check on you. That is a standard when evaluating any loan application. If you have a high credit score, you are more likely to get an approval unlike when you have a poor credit rating. This is why it is always advisable to get a copy of your current credit report before applying for any loan. Your low score might reflect errors in reporting, which you can dispute to be corrected. Most loans available are offered to good-credit borrowers. If you have bad credit, you may opt to apply for a poor-credit loan.

5. Frequent changes in home address and jobs. If you are renting and tend to move many times in just a short period, you might expect to be declined for a loan. Lenders mostly prefer borrowers who own a house and who live in a permanent address. Job tenure is also an indication of stability.