Top 10 reasons why a bank will turn you down for a personal loan
A personal loan is riskier than other types of loans for lenders. Since personal loans do not include any property the lender could repossess if you don`t pay, lenders have stricter criteria for personal loan approval to cover the high risk. If you are trying to get a personal loan and are denied, it may be because of one or more of the common reasons for a denied personal loan application.
1. Fair Credit History and Score
Lenders check your credit history and score for all credit products, including auto and home loans, but your credit has a larger impact on the lender`s decision if you`re applying for a personal loan. Since the lender is risking more by lending to you, the lender will look for a higher credit score and excellent credit history.
2. No Credit History
Not having an established credit history is often nearly as bad as having poor credit. The lender uses your history to determine the likelihood of you paying back the loan. If you have no credit, the lender has no reference point that shows what kind of borrower you are.
3. Too Many Credit Inquiries
Every time you apply for a loan and the lender checks your report, the check shows on your credit as an inquiry. While you can have more than one inquiry in a short period of time for rate comparison purposes, too many inquiries may signal to the lender that you are financially distressed or engaging in fraud.
4. No Documented Income
You need to have documented income for a personal loan. You must have pay stubs, tax returns and other hard evidence of the money you are saying you make on the loan application.
5. Unstable Income
Even if you make more than enough money to pay the loan, the lender still examines your source of income. If your income source is considered unstable, such as from self-employment or a temporary job, the lender may turn down your application.
6. Length of Current Job
Lenders often require you to be at your current job for a specific number of months to get personal loan approval. You may be denied a loan even if you meet all the lender`s other criteria if you haven`t been at your job for long.
7. Unstable Job History
If you have gone from one job to the next in a short period of time or have been unemployed for long periods with no reason, you may not get the personal loan. Lenders consider a patchy or unstable job history a sign that you can`t keep a job, which would affect your income flow.
8. Poor Preparation
Missing an item on your loan application, entering the wrong information or failing to produce the paperwork the lender asks for can cost you the loan. The loan officer needs to process your application in a timely manner and if you don`t do your part, you may be denied.
9. Loan Reason
Lenders ask what the personal loan money will be used for. If you`re using the money to finance a vacation or other item with no value or possibility of improving your financial circumstances, the lender may not give you the loan.
10. Asking For Too Much
Lenders consider whether you have enough money to make the payments you`ll have. A lender will consider your other expenses, such as your housing payment, when deciding if you can afford a personal loan. Budget yourself and estimate your loan payments before applying, so you don`t ask for more than you can afford. A budgeting tool, such as a loans calculator or monthly expenses estimator, will help you decide what you can afford.