Personal loans are especially useful when you need cash for a medical emergency, to finance a wedding or pay up your credit card debts. There is never a full proof method to know if your personal loan application will be approved or not. But every rejection affects your credit score and is a red flag for the next bank you approach.
Your personal loan may be rejected for a number of reasons. Some of them are:
The big question is, how do you avoid your loan from being rejected then? There are a few simple steps that you can follow to try and ensure that your bank lends you the requested funds.
Your credit score will determine if a bank is willing to let you take out a loan. A good credit score is always better than a poor one. To improve your credit score, ensure that your outstanding debts are all paid up. Once this is done wait for at least a month before you apply for a personal loan.
Every time you apply for a loan, the creditor lists it in your credit file. Multiple applications within a short period of time can raise suspicions and have an adverse impact on your all-important credit rating.
Sometimes banks may reject your loan application if the requested documents are not provided on time. Documents like your payslips and Tax Assessment Notices are needed by the bank to approve and process your loan. Also, ensure that your application form is filled in full and all details are verified. Insufficient or inaccurate details could lead to automatic rejection of your application.
All personal loans in Singapore have minimum income requirements as part of their eligibility criteria. Depending on the type of loan you are considering taking, the income requirements may differ. In general, in order to be eligible for a personal loan, you need to have a minimum income of S$20,000 and upwards per year if you are a Singapore Citizen or a Permanent Resident. For foreign nationals, the annual income requirement is S$40,000 and upwards. Apply for this loan only if you meet this income requirement since rejection could affect your credit score.
If you have more loans than you can afford to repay, lenders are less likely to let you borrow funds from them. One way to prevent your application for a personal loan from being rejected is to consolidate your borrowings by repaying a few loans in full. This way you will have fewer loans against your name when you apply for a new one.
Some banks may require that you be in employment for a minimum period of time before they consider your loan application. Ensure that you check with the bank on how many months of service is needed so that your application is not rejected on these grounds.
As mentioned earlier, banks will refuse to lend funds for any dubious reasons. Moreover, secured personal loans have certain restrictions on what the borrowed amount can be used for. Check with your borrower if you can use the funds for your purpose before you apply. This will reduce your chances of rejection. At times, you may find specialised loans that offer better benefits than personal loans do. For instance, taking out a car loan to buy a car or an education loan to finance your university expenses makes more sense than taking out a personal loan for the same purpose.
If you are taking out a secured loan, then first check with your banker if the assets you want to pledge are permissible. Also, check with them on the collateral amount that you need to provide. This way you can see if you have sufficient amounts or the right type of collateral.
As with all purchases, it is imperative that you do your research before taking out a personal loan. Banks won’t lend amounts that they know you can’t afford. So, ensure that you are realistic when it comes to both picking a bank for your loan purposes, loan quantum as well as your financial standing. The chances of your personal loan being rejected will reduce if these are kept in mind.