Money is the answer to the vast majority of life’s challenges, yet there are occasions when we might want more financial resources than we now possess.
In circumstances like this, individuals have the option of borrowing money from financial institutions such as banks and NBFCs.
Personal loans are, among the several types of loans available, one of the most convenient ways to obtain short-term financing for trips, weddings, house improvements, or any other unexpected expenses that may arise.
On the other hand, the application process for a loan can result in denial for certain individuals.
In order to prevent finding yourself in a situation like this, you should familiarize yourself with the most prevalent factors that could lead to the rejection of your application for a personal loan.
Why you may have been declined for a personal loan
Personal loans can be declined for a variety of reasons, but the good news is that you don’t have to speculate about what those reasons might be.
Within the next thirty days, lenders are expected to issue you an adverse action notice stating why they did not approve your loan.
If you still have questions after reading that, you can give the lender a call and inquire about what took place.
People with Bad credit
When deciding whether or not to give you a personal loan, a lender will usually look at a number of things, such as your income and your FICO credit score.
Lenders can figure out how well you may or may not be able to handle money based on your credit score. Your history of making payments and how much debt you have are two of the most important parts of your credit score.
If you want an unsecured personal loan, which is a loan that doesn’t have any collateral attached to it, most money lenders in Singapore will have stricter requirements for you to meet.
Some creditors will tell you the minimum credit score you need to get approved. If you don’t meet a lender’s minimum requirements, it will likely be hard for you to get a loan from that lender.
Even if you are approved for a loan even though you have bad credit, the personal loan interest rate you pay will be higher to make up for the higher chance that you won’t be able to pay it back.
Your debt-to-income ratio was too high
Another problem you might be having is that your DTI ratio is too high. To figure out this ratio, you compare the total amount of your monthly debt to your monthly gross income.
If your monthly debt payments are $3,000 and your monthly income is $5,000, for example, your debt-to-income ratio would be 60% if you divided your monthly debt payments by your monthly income.
Lenders might think that if this high percentage stays the same, you might have trouble making your monthly loan payments.
Because of this, most people agree that a DTI ratio of 35% or less is a good goal. If you did it this way, you’d have a better chance of getting the fast cash loan.
You tried to borrow too much
Your request for a personal loan could be denied if you ask for more money than you can pay back on time and in full.
This is because the amount of credit a lender is willing to give you depends on both how much money you make and how much debt you already have.
The lender may decide that you don’t meet the requirements to borrow a certain amount after looking at your finances.
Imagine that you want to get a personal loan for $100,000 even though you know that your monthly income isn’t enough to cover the cost of paying back the loan. Because you are asking for a ridiculous amount, the lending company will almost certainly say no.
Your income was insufficient or unstable
Lenders will look at your income in addition to your credit score and your debt-to-income ratio when determining whether or not you will be able to repay the loan that you have taken out.
To put it simply, they want to make sure that you won’t fall behind on your payments and that you won’t be unable to pay the money that you owe.
Your application might be denied by the lender if they determine that your monthly income is insufficient to cover the amount of money you want to borrow, or if your income seems to fluctuate from month to month.
Your loan purpose didn’t meet the lender’s criteria
Even though you can use the money from a personal loan for almost anything, you still need to follow some rules.
For example, it’s not a good idea to use a personal loan to pay for school costs like tuition. It’s possible that the company that gave you the money has rules that say you can’t gamble with it or invest it.
Your application can be turned down if you give a reason for needing the loan that is outside of what the lender requires.
The creditor will also look at how old you are to decide if you will be able to pay back a loan. How old you have to be to get a Personal Loan depends on whether or not you work for yourself instead of for a company.
Most of the time, salaried employees between the ages of 21 and 55 and self-employed people between the ages of 25 and 60 are thought to be the best candidates for personal loans.
How to get a personal loan with bad credit
Although improving your credit score and debt-to-income ratio will be beneficial, doing so can take a significant amount of time.
If you need money from a personal loan right away and can’t wait until your credit score improves before applying again, there are other options available to you that will allow you to obtain a loan even if you have poor credit or no credit at all.
Check with your local credit union
One of the first things you should do to find a solution to your problem is to check with your local credit union to see if they offer personal loans.
Personal loans from national banks usually have higher interest rates than loans from credit unions. This is because credit unions are not-for-profit organizations, while national banks are for-profit.
Your company might give you access to a credit union, so that’s the first place you should look. You might be able to join a credit union if someone in your family is already a member of one of the groups or organizations that the credit union helps.
If you can’t get a personal loan through your employer or a family member, you should look into credit unions in your area that offer personal loans.
Some credit unions will only let you join if you have served in the military or are a member of an organization that helps the public.
Also, if you join a federal credit union, you might be able to get a loan that is a good alternative to a payday loan (PAL).
The most you can pay in interest on these unsecured loans is 18%, or 28% on some small, short-term loans. The idea behind these loans was to help people avoid the high rates of interest that come with payday loans.
One problem with these instant loans is that the terms are usually very short, ranging from one month to one year for the length of time you have to pay them back.