Over the years, lending institutions have come a long way. They have abandoned many conventional practices down the road that posed a variety of problems to borrowers. For example, almost all lenders can get accessed online today. So, you don’t have to physically bother yourself one bit to connect with an ideal lender. So much so, lenders are also coming up with different types of loans that are comparatively easy to avail, such as personal loans.
Going by definition, an individual has complete freedom to use a personal loan for any legal purpose. Whether you want to buy furniture, start a business venture, or go on vacations, the lender has no right to influence your choice. However, despite having a relatively convenient qualification process, many people fail to get personal loans. If the application for your loan gets outrightly rejected, the following factors can be responsible for that:
1. Poor Credit History
Credit history is something every money provider would like to evaluate first. Because it is the blueprint of your financial record. By looking at the credit history, lenders can sketch a clear picture of your past and current monetary standing. As a rule of thumb, an individual having a credit score above 660 has a bright possibility of getting the attention of a lender. Anything below the said threshold will decrease the odds to qualify for the loan.
Since personal loans don’t deem it necessary to put something as collateral, lenders heavily rely on the credit score. Falling marginally short of this criterion will not go down well with the lending party. Try being mindful of the fact that there are vast and varied types of personal loans. Thus, comparing loans online will give you a better idea regarding loan type is in step with your needs.
2. Irregular Employment Past And Income
If you like to switch the workplace now and then, you might not make it to the good books of a lender. The reason being, constant job-hopping will convey to the lender that you could fail to keep up with the monthly installments for an extended period. Moreover, some lending parties would be reluctant to accept the application of freelancers because, by nature, freelancing can potentially generate an intermittent stream of income.
There exists no such thing as a universal rule to measure the stability of jobs and wages. Hence, different lenders exploit different approaches to assess these details and handpick suitable candidates. But most lenders will not reject a loan application if the borrower has been occupying the current job for one year at a minimum.
3. Mounting Debt
As mentioned earlier, you can use a personal loan to meet any individual or professional needs. That is why people consider it as an excellent option to consolidate their current debt. That said, no lender would take the risk to sanction money if someone has multiple loans on his credit.
All lenders take debt-to-income ratio into account, which is the total percentage of income an individual is liable to pay as debt. The equation is straightforward. That being, the higher debt-to-income ratio reduces the chances of timely repayment. That is why every lender gives high weightage to this aspect.
Preferably, a prudent lender would want your DTI ratio to be below 43 percent. To be extra cautious, one should calculate the DTI ratio before filling the loan application. If it stands on the higher side, try to bring it down first before calling a lender.
4. Falling Short Of Correct Documentation
Every year, the lending industry becomes subject to several scams. These fraudulent activities have forced lenders to be super careful about the provided information. Consequently, all documents get thoroughly checked, and a single error will be enough to dismiss your application. Because the respective lender will assume it as deliberate malpractice and may immediately lose faith in you.
5. Not Meeting Age Criteria
Not many people know that the age factor could also keep you from getting a personal loan. A lender can easily discard anyone who is under 20 or beyond 60. Depending on who you approach for the loan, age preferences may vary.
6. Multiple Hard Inquiries
A hard inquiry, also known as hard pull, refers to the process where the lender gets to the bottom of your credit report. Every time your credit report undergoes a hard pull, the credit score also receives a dent. You don’t need any expertise in finance to conclude that numerous hard inquiries will eventually lead to a weak credit report, which could be equivalent to being turned down by a lender.
Final Thoughts On Personal Loan Factors
Knowing the various uses of personal loans, countless people apply for them every year. But, unfortunately, a fair proportion of the borrowers have to return empty-handed. The rejection could be tough to digest, especially when no friend or family member is willing to come forward for the funding. Make sure you cover all the areas mentioned above because this is the tried and trusted recipe when it comes to the approval of a personal loan.
