With personal loan approvals rates running between five and twenty percent for people with bad credit, good credit and no credit, we need to take the opportunity to explore why so many personal loan applications are denied. Lenders are in a highly regulated market and those rules are set by the FDIC and some of the key themes around granting credit relate to making sure that the amount for the of the personal loan is suitable and that repayments can be made without putting the borrower into hardship. So, we will explore both of these issues.
Propensity to Repay a Loan
In terms of looking at the propensity to repay a certain loan amount and borrow is typically done to look at someone’s credit history. The credit history indicates in your credit score indicates a level of risk and as a borrower prepared to take on a level of risk for either a $20,000 loan or a $2,000 loan, see ARCCT today for more information. They are quite different because the time exposure on that term of that loan is very different as well. So, a lender will look at information on your credit file that comes from a credit bureau and apply rules.
Those rules may relate to cutoff points, for example, the lender may not take on customers with a score below a certain point. Or there are things on your credit file that do not look good to the lender, for example, lenders see a high level high number of applications in the past 30 days. Looking at it from a lender’s point of view, they do not know the outcomes of those applications so it is difficult to advance another personal loan in those circumstances. In addition to that, they may also see things like defaults, unpaid defaults, if they are to another lender. So, despite your score there is evidence of poor conduct, or poor history that the lender does not like the look of.
Capacity to Repay a Loan
In terms of your capacity to repay might be sure you can make the repayments on time for the term of that loan. A lender is going to look at evidence of that on your bank statements. So, your likelihood to repay is best reflected about your current repayment pattern that you have got on your current credit facilities; personal loans, car loans, and even other things like rent, mobile phone bills, and other obligations you might have.
When looking at a personal bank statement, reasons that someone will be declined range from things like overdrawn accounts (not just once, but regularly overdrawn), dishonoring payments to other lenders, or missing payments in total. Additionally, if you have a credit card but there is no evidence of the payments being made, then it is hard to make a case for giving an applicant a new loan. Therefore, really a lender is looking for evidence of your likelihood to repay and your capacity to repay.
Increasing Your Odds of a Loan Approval
In order to improve your chances to get a loan, lenders suggest before you apply you check the lender. Make sure that lender is looking for customers with your credit profile and is happy to take on customers for your credit profile. There is a lot of financial exclusion from the mainstream lenders due to those cutoff rules, but there is also a lot of other options out there for consumers as well. In terms of bank statements, and your current facilities, maintain good conduct on those so that a lender gets comfort that you are the type of person to make those repayments. In addition to this, make sure you have not got too much debt as well, but that is a separate topic. Hopefully you have found this information useful for the next time you need to find a personal loan.