Getting loan applications rejected is stressful and discouraging. It sets a recipe for disaster, especially if an individual needs a loan for something important. Ultimately, loan approval decisions largely depend on your capability as a borrower and your lender’s requirements. If you fail to tick even a single criterion, you’ll have a higher chance of loan rejection.
You can improve your chances of getting one by knowing why loan applications are denied. In this article, you’ll learn common reasons your loan application was declined and what you can do to increase your approval chances the next time around.
10 Reasons for Loan Rejection
Most people get their loan applications denied due to their credit scores, employment history, and debt background. Apart from that, here are some of the reasons stated by a reputable credit scoring company:
1. Low Credit Score
Lenders view a poor credit score as an indication of unreliable financial behavior. This score reflects your history of repayments and credit utilization, making it a crucial factor in loan approvals. Credit scores also depend on the lending institution, so check them before submitting an application.
2. Inconsistent Employment History
An inconsistent employment history can be a significant hurdle to securing a loan. Creditors look favorably on applicants who can demonstrate a consistent income stream through their work history. Frequent job changes or long periods of unemployment raise concerns about the borrower’s ability to meet repayment obligations consistently. If lenders find you frequently switch jobs, your loan application will most likely get rejected.
3. Insufficient Income
One of the primary reasons loan applications are rejected in the Philippines is insufficient income. Lenders need assurance that borrowers have enough regular income to cover their loan payments. To be approved for a loan, applicants typically must show proof of regular income from an employer or other sources. If you’re self-employed, lenders may also require documents like financial statements and tax returns to verify your income level. This can be a challenging criterion for Filipinos, especially those in lower-income brackets, often leading to loan denials.
4. High Debt-to-Income Ratio
A high debt-to-income ratio is a red flag for lenders. It indicates that a significant portion of the borrower’s income is already committed to debt repayments, limiting their capacity to take on additional financial burdens. Rejects for loan applications are common because many people struggle with their debt. To avoid this, individuals must keep their debt-to-income ratio below 43%.
5. Excessive Loan Takeouts
Frequent loan takeouts signal to lenders that the borrower might be overly reliant on credit, a concern for financial stability. In the Philippines, where many different types of loans are available, it is easy to become mired in a never-ending cycle of borrowing money. As a result, Filipinos will fall deeper into debt, further undermining their loan applications.
6. Unreasonably Large Loan Request
Requesting an amount disproportionate to one’s income and repayment capacity is a common reason for loan rejection. A good loan approval tip is to keep your loan requests realistic—only request the amount you can pay. Filipinos need to be practical about the amount they can comfortably repay to avoid denial based on an unreasonable demand for a loan.
7. Failure to Meet Basic Requirements
Sometimes, the reason for the loan’s decline is as simple as failing to meet the lender’s basic requirements. These can include age, citizenship, or minimum income thresholds. Filipinos must thoroughly understand and comply with these prerequisites to improve their chances of loan approval.
8. Noncompliance with Lender Criteria
Each lender sets specific requirements that applicants must meet, such as belonging to a certain demographic or achieving a minimum credit score. Failure to meet these criteria can lead to an immediate decline of the loan application. Borrowers must understand and align with these unique lender requirements. Researching and selecting a lender whose criteria match your financial profile can significantly enhance your chances of loan approval. This step is often overlooked but is essential in the loan application process.
9. Incomplete or Missing Information
Incomplete or missing information in the loan application can lead to immediate rejection. Lenders in the Philippines require detailed and accurate information to assess a borrower’s creditworthiness. That’s why applicants should double-check their applications for completeness and accuracy.
10. Undisclosed Debts
Not disclosing existing debts is a serious issue that can lead to loan application rejection. Lenders need a full picture of the borrower’s financial obligations to assess their repayment capacity accurately. In the Philippines, where informal lending is common, failing to disclose all debts, including those outside formal banking channels, can be detrimental to loan approval chances.
How to Boost Loan Approval Rates
Finscore is revolutionizing loan approval processes in the Philippines, especially for the underbanked. By utilizing alternative credit scoring, Finscore extends the opportunity for loan access to those without traditional credit histories. Our innovative approach evaluates a range of data, including telco details, shopping behaviors, utility payments, and digital footprints in credit scoring, to assess creditworthiness more holistically.
Filipinos who might not be considered for credit under traditional systems can gain significantly from this method, increasing their chances of loan approval. With Finscore’s alternative scoring, the unbanked can establish and enhance their credit scores, opening doors to previously inaccessible financial opportunities. Aside from that, we give Filipinos loan approval tips so they will no longer have to worry about reasons for loan rejection.
Increase Loan Approval Odds with Finscore
Getting a loan application rejected can be disheartening, especially if the need is critical. That’s why understanding common reasons for loan denial can improve your chances of approval.
Remember, the key factors for loan denial include:
- a low credit score
- inconsistent employment history
- insufficient income
- high debt-to-income ratio
- excessive borrowing
- large loan requests
- failure to meet basic requirements
- noncompliance with lender criteria
- incomplete application information
- undisclosed debts
Finscore addresses these challenges by offering alternative credit scoring in the Philippines. This creditworthiness assessment method uses telco and shopping data, benefiting the underbanked and those without traditional credit histories. And by improving loan approval odds, Filipinos can access financial opportunities.
Need more information on getting your loan application approved? Get in touch with us today, and we will gladly help you.