If you’ve been rejected for a personal loan, then you may be wondering how you can make the situation right so that you can be approved. Now, before you can do this it’s important to know why borrowers are rejected. To help you out, we thought it would be useful to discuss the reasons why borrowers are rejected by lenders. By knowing the reasoning behind your loan application, you’ll be able to make changes to increase your chances of being approved. If this is something that you want to learn more about, read on as we break down the four most common reasons why people are rejected for personal loans.
Bad Credit History
When you apply for any loan—mortgage, student loan, or personal loan—credit history is the number one factor lenders consider in determining whether to lend you money. Your credit history tells them how likely you are to repay (or default on) a loan. If your credit history shows that you have been late making payments or have unpaid balances, then lenders are more hesitant to trust you with a loan.
Erratic Employment History
Lenders generally want to make sure that the income listed on the application for a loan will continue to be consistent in the future. This means that if you have different pay stubs, recently changed jobs (in the last sixty days), or have freelance work coming in from multiple employers, it may be hard to verify the consistency of your income.
If your income is inconsistent and unpredictable because you’re always changing jobs, lenders may still consider your application. While your paychecks may not match, some lenders may look at previous tax returns to get a clearer view of your financial situation over a longer period of time.
When you borrow money from a lender, you must prove you are able to pay back the loan. This is called “income verification,” or “verifiable income.” If the lender does not think you can repay the loan, you may be denied or offered a smaller loan. With your next application, make sure you include all income you get from side gigs and child support payments.
High Debt-to-Income Ratio
Even if your monthly income is sufficient, you may have your loan application denied if you have too much debt. To determine whether you have too much debt, a lender will divide all of your monthly debts by your monthly income. If the result is more than 40%, this signals to the lender that you have taken on too much debt.
Final Thoughts On Overcoming Being Rejected for Personal Loans
We hope this article proves to be useful when it comes to furthering your understanding of this process. Now that you know about the most common reasons why borrowers get rejected, you can take the necessary steps to increase your chances of getting approved for a personal loan.
If you are looking for the best offers for, personal loans, we can help you. At Opelika Finance we understand the time-sensitive need for help when short on funds. Located on Pepperell Pkwy, Opelika, AL, we strive to make same-day loans ranging from $202.00 to $1491.00 with clear, straightforward repayment plans. Our goal is to make the borrowing process quick and simple. Apply for a loan with us today!