Why I keep getting rejected for personal loans: Unpacking 6 key reasons

If you're picturing bright sunrises and peaceful sunsets, during your next vacation in Singapore, the unfortunate truth is that getting a personal loan from your bank won't be as easy as you think it might be. If your loan application was denied, with no explanation as to why, it can be very frustrating!

Low credit scores, high debt-to-income ratios, inconsistent or not enough income, and errors in your application or the supporting documentation are the common grounds for denial. By knowing the above, you will be able to handle them better and you have a much higher chance of getting an approved application next time.

Low credit score

One of the primary reasons for loan rejection is a low credit score. Your credit score acts like a report card, indicating your ability to handle debt. It typically ranges from 300 to 900, and a higher score increases your chances of loan approval. Many factors contribute to your credit score, so it’s essential to understand how to maintain a healthy score.

Multiple inquiries and loan applications

If you’ve applied for personal loans from various lenders simultaneously, it could signal to banks that you are uncertain about your finances. Multiple inquiries may negatively impact your credit score and raise concerns about your stability. It’s advisable to apply for a loan with one lender at a time, demonstrating commitment and reliability.

Unpaid debts

Carrying a high amount of unpaid loans or multiple credit card debts can lead lenders to perceive you as financially overextended. This burden reflects poorly on your credit score and increases the likelihood of loan rejection. To improve your chances, focus on paying down existing debts before applying for a new loan.

Insufficient income

Meeting specific income criteria is crucial for loan approval. If your income doesn’t align with the loan amount you’re requesting, lenders may view it as unrealistic. They will assess your overall income to ensure you can repay the loan in a timely manner, which is essential for their confidence in your repayment ability.

Unstable employment history

Your employment status plays a significant role in loan approval. Lenders prefer applicants with stable jobs and a consistent work history. Frequent job changes or gaps in employment can raise red flags, leading to potential rejection. It’s beneficial to demonstrate a solid employment background with a reputable employer.

Errors in documentation

Accurate documentation is vital when applying for a loan. Lenders perform thorough checks, and any inconsistencies or errors in your application can lead to rejection. Make sure all forms are filled out correctly and that all supporting documents are in order before submitting your application.

If you're considering a personal loan, ensure you meet the necessary criteria and maintain a good credit profile. Personal loans are subject to approval based on individual creditworthiness and financial circumstances.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.