5 Tips to avoid a personal loan rejection
Perhaps you’ve always paid your bills on time and have never taken any loan before – you might be surprised if your first personal loan application got rejected.
There can be many reasons for your loan rejection. While the lender may not provide you with a reason, the stated reasons below can help you get an inkling of why it happened.
Possible reasons for a loan rejection
1.Bad credit history – perhaps you’ve had some late payment records but you’ve paid them off years ago, so how can they still affect your loan application? Sadly, they can. The credit bureau in Singapore keeps a record of all your different defaults and late payments across their partner banks. If your lender pulled out your record and felt that you make a good candidate for potential defaults, then you’d most likely not get the loan.
What you can do – consider buying your credit report to check if the information reflected is correct. If you’ve had some bad credit history, fix the records by ensuring you are paying on time. If not, you can consider a loan from a legal moneylender which uses a different credit bureau for assessment.
2. Not meeting the income requirements – whether you are borrowing from a bank or a licensed moneylender, there is a minimum income requirement. Most banks here require a minimum annual income of $20,000 for Singapore citizens whereas foreigners will need an annual income of $45,000.
What you can do – check the income requirements online before you even make the application. For legal moneylenders, you can borrow up to $3,000 if your annual income is less than $20,000.
3. You have little credit history – you’re probably a fresh graduate and have never applied for a credit card nor taken a loan before. This means that there’s probably not much information on your credit file. You may be surprised that having a thin credit file can be a reason for rejection as well!
What you can do – build up your credit file by applying for a credit card if you can meet the requirements. Use it a few times but ensure that you always pay the bills in full and you can probably try applying for a loan again a few months later.
4. You have an unstable employment history – having a stable income is seen as a criterion for being able to pay back your loan. If your lender finds that you are often job-hopping or have frequent gaps in your employment history, they might think twice about extending the loan to you.
What you can do – before you apply for a loan, check that you have been employed in a full-time role for at least a year. If not, you might want to consider going to a legal moneylender since they may be a little more lenient compared to banks. However, do note that moneylenders loan are usually more expensive since they are meant to be short term loan. Always assess your financial situation and ensure you can repay before you borrow.
You may also want to consider a secured loan by putting up a collateral since they will provide your lender with more assurance.
5. You’ve submitted several loan applications – since you were worried that the different lenders might reject your loan application, you’ve made a “kiasu” move by sending in multiple loan applications to different lenders. Not only will not expedite the loan approval process, it sounds off the alarm bells to whoever is checking your credit file! Everytime you submit a loan application, a request is made on your file and having too many within a short period of time may give the indication that you are desperate for credit.
What you can do – practise patience! Submit a single loan application and wait patiently for the approval. In fact, the loan approval process should be pretty quick if you’ve got all the necessary documents ready. If you’ve been rejected, wait for a few months before re-submitting an application to a different lender to try your luck.