Getting rejected for any reason is hard to accept – but don’t take it from us! It can be especially hard to accept if it involves money, as in a personal loan application. In most cases, this rejection means that you wasted a lot of time and effort in preparing the necessary documents. It makes you want to ask the bank why it rejected your loan application. You wonder what the reasons are for this rejection.
You don’t need to go crazy to try and reverse the decision of the lender. Instead, try to find out why it was rejected and what you can do about it – for future reference.
Personal Loan Rejected? Get to Know the Common Reasons Behind This!
In the Philippines, personal loan providers base their decisions on a person’s financial information and credit reports. If you get a no from them, it’s most likely due to one of these factors.
1. Accumulating Too Much Debt
If you have a lot of debts, it’s best not to apply for a loan at first. Once your bank confirms that your situation is getting way out of hand, it will probably deny your application.
To avoid getting rejected, keep your debt-to-income ratio low (ideally 12% or lower). This ratio should be computed by dividing your monthly income by the outstanding debt. If it’s too high, consider delaying your loan application until you’ve paid off at settled at least a portion of your debt.
2. Failure to Meet Loan Requirements
Have you thoroughly read and understood the lender’s requirements. If so, you might also have failed to meet one or several of their requirements. This could be one of the reasons why you were rejected for a loan.
Some of the requirements of local banks vary depending on the type of loan they offer. For instance, if you’re planning on applying for a loan with Citi, you need to have a credit card.
Also, when it comes to getting a personal loan from a local bank like BPI, make sure that your home is near a branch of the lender.
3. Higher Amount Requested than What You can Pay
Simply put: the amount you indicated on your loan application was too high, which was the main reason why it was rejected.
It could be that you asked for an amount that was too high compared to the amount that you could pay back.
You can avoid this mistake by using the online loan calculator offered by your bank. It will help you compute the interest and monthly payments on your loan.
This tool will allow you to check how much you can borrow based on your income. It will also let you know if you should try and borrow a lower amount.
4. Incomplete and Inconsistent Details
Make sure that you double-check every detail on your application to avoid making a mistake that could affect your chances of getting approved.
This is also the time to ensure that the personal information you have provided is complete and accurate. If it is not, the processing of your loan will be delayed. Follow-up calls from the bank are also helpful in ensuring that the data you provide is complete and accurate. This will help minimize the chances of getting rejected.
5. Insufficient Income
Even if you have enough money in your account, banks and lending companies will still reject your loan application if you can’t meet their monthly income requirement.
Before you apply for a loan, make sure that the minimum income requirement is met by the lender. This will allow the bank to see if it can approve or reject your application.
For instance, to apply for a loan with Citibank, the minimum income requirement is required to be at least PHP 250,000 annually (approx. PHP 20,833 per month).
And to apply for the EasyRFC multi-purpose loan, the monthly income requirement should be at least PHP 18,000 (PHP 216,000 annual income).
6. Irregular Employment Records
Although a lender’s income requirement is one of the factors that can affect a loan’s approval, other factors such as a borrower’s employment history and length of service are also considered.
Aside from having a bad employment record, frequent job changes or a long gap between jobs can also affect your credit score. Most banks require that you be employed for at least a year.
7. Poor Credit Rating
A good credit score is very important to a successful loan application. Many people with stable jobs and high salaries are surprised when their loan applications are rejected.
Many people think that only their credit history and credit score are factors that will affect their chances of getting a loan. However, these factors are only some of the factors that banks consider when they decide to approve a loan.
In some cases, an error in a credit report can affect a person’s credit score. For instance, if a loan payment was incorrectly reported as late, this could cause a drop in the score. It’s important to check your credit reports to see if there are any errors.
Factors Considered to Determine a person’s Credit Rating
Each bank, loan officer, and other financial institution in the Philippines has its own standards and processes for rating credit scores.
Although credit scores are computed by the banks themselves, these are only some of the standard indicators that they use to rate loans. Even without asking, it’s natural to wonder what the factors that affect one’s credit rating are. So, to give you an idea, here are some of them:
- Payment history: This report shows all the payments that a consumer makes to a financial institution. It also shows if the individual has been paying on schedule.
- Duration of borrowing money: This is an estimate of how long an individual has been making their loan payments. It shows how long they have been paying for their loan.
- Amount loaned: A person’s ability to pay back their loans is a key factor that lenders consider when approving a loan. Having too much debt can make it harder for people to make their monthly payments.
- New Credit: This shows the number of new accounts created and the frequency of new accounts opened.
- Types of Credit Availed: Banks and lenders check if you have multiple accounts, such as a credit card, personal loan, and business loan.
Currently, the Philippines’ credit rating system is being consolidated under a single, centralized entity known as the Credit Information Corporation (CIC). This is the biggest database of its kind in the country.
As of 2019, the CIC has the biggest credit database in the country with over 9 million unique individuals and over 81,364 companies.
During this transition, various financial institutions and credit card companies continue to use different analytical tools to determine a person’s credit score.
Why is Maintaining a Good Credit Score Important?
Having a good credit score is very important to a person’s chances of being approved for a loan. It shows that the person can meet the terms of the loan.
In the Philippines, less than 25% of the population is financially literate. This makes people more aware of their financial status, including their credit rating.
Being aware of one’s credit score can help people avoid making poor financial decisions in the future. It can also affect their ability to save for future purchases.
Benefits of Maintaining a Good Credit Score
A good credit score can help them get the most out of their financial situation and enjoy a variety of benefits, which include the following:
- Better negotiating power: A good credit score can also help people lower their interest rates. This benefit is usually achieved by negotiating lower rates on various debts.
- Eligibility for higher limits: A good credit score is also helpful in getting approved for a loan. Banks typically require proof that the person can pay back the borrowed money on time.
- Improved chance for loan and credit card approval: A good credit score can help individuals get approved for a loan or a credit card. It can also give them confidence.
- Low interest rates on loans and credit cards: A good credit score can help people lower their monthly payment and get them qualified for the best interest rates.
Ways to Improve your Credit Rating in the Philippines
- Pay bills on time. If a person can’t pay their credit card bills on time, it can affect their credit score. To boost their score, it’s important that they regularly pay their credit card bills early. Doing so helps make a good impression and shows that they can manage their finances.
- Avoid taking out several loans at a time. If a person applies for multiple loans at once, this can affect their overall credit score.
- Build smart financial aptitude early on. Getting a credit card as early as possible can help build a good credit history. It can also help people get approved for home loans and car loans. Having a good credit history helps banks and other financial institutions assess a person’s risk.
- The state of credit scores and rating in the Philippines. In the Philippines, many financial firms are now using data from telecommunications companies to improve their alternative credit scoring.
Back to Basics: 3 Things to Consider before Applying for a Loan
Financial stability is an important aspect of life. It can be challenging to achieve, and many people make the mistake of assuming that it’s an easy task.
There are various ways that individuals can leverage their financial resources to reach their goals. One of these is taking out loans. Before you do so, however, it’s important to know some of the basic details of these loans.
- Type of Loans: Different types of loans have their advantages and disadvantages. It’s important to analyze the various factors that affect the type of loan that’s right for you. Here are some of them:
- Secured: This type of loan requires a collateral pledge which is used to secure a loan against a potential borrower’s failure to pay. This type of security usually comes with lower interest rates. Examples include title loans, pawn shop loans, secured personal loans, and home equity loans
- Unsecured: This type of loan does not require a collateral and is ideal for those who wish to settle high-interest credit card debt. If you’re taking out an unsecured loan, make sure that you’re responsible. This will affect your credit score, which will help you get more loans.
- Credit Score: As mentioned, a credit score is a vital component of a person’s financial life, and it measures their ability to pay for their debts on time. It’s computed based on various factors such as their credit history and current account balances. A credit score that’s higher than 300 is considered to be the best score, while a score below that level is considered to be the worst. Having a high score helps banks and other lenders determine if a person is a good fit for a loan.
- Fees: Aside from interest, there are also various fees and charges that are associated with obtaining a loan. It’s also important to understand how these expenses will affect your financial life.
Frequently Asked Questions
1. What is a personal loan?
A personal loan is typically a type of loan that’s carried out by banks and other financial institutions. Usually, it doesn’t require a deposit.
2. Where can I use my personal loan?
A personal loan is a great way to fund a wide range of expenses, such as starting a new business, sending your kids to school, or paying off debt. It can also help fund your dream vacation.
3. How much money can I borrow?
The minimum amount that you can borrow for a personal loan is 10,000. Depending on the terms and conditions of your loan, the amount that you can borrow may be as high as 2 million.
4. How do I qualify for a personal loan in the Philippines?
To be eligible for a personal loan in Philippines, you must be 21 years old and be a permanent resident. Aside from having a good credit score, you also must meet several requirements, including having a credit card.
5. What ar.e the loan application requirements?
Most banks and lenders have their own requirements for personal loans. Here are the most common ones that you should consider when applying for a loan:
- Completed application form
- Valid government-issued ID with photo and signature
- Latest full payslip
- For employed: Latest income tax return (ITR), BIR Form 2316
- For self-employed: Latest ITR or BIR Form 1701, audited financial statements with independent auditor’s report and balance sheets and tax receipt
- For foreigners: Alien Certificate of Registration (ACR), valid passport, and any valid proof of residency
6. How long will it take. me to pay back my loan?
When applying for a loan in the Philippines, you are asked to choose a loan term that’s typically six months or as long as 60 months.
If you need a short-term loan, don’t take it if you don’t have the money to pay it back in the next couple of months. On the other hand, if you need a long-term loan, don’t lock yourself in.
7. How do I compare personal loans online?
One way to compare different loan options is to visit the websites of the various providers. Doing so often requires opening multiple tabs.
8. How do I calculate my monthly loan payments?
You can easily calculate your monthly loan payment by going to a website that lets users borrow money with a personal loan calculator.
9. My loan application was declined. When can I apply again?
After getting rejected for a loan, you can still apply for the same loan or another loan. However, the reapplication period will be set by the lender.
If you were denied for a loan by CIMB, you can still apply for it within three months from the date when you were notified about the rejection.
If the loan company doesn’t provide a specific time frame when rejected applicants can re-apply, it’s suggested that you wait for at least three to six months.
10. What can I do after my personal loan application has been rejected?
Getting approved for a loan is not always an easy task, and identifying the reasons behind your loan rejection is the first step to improving your chances. Regardless of the reason, take the rejection as an opportunity to improve your financial habits. Doing so will help you build a stronger credit score and lower your debts. Before you start another loan application, make sure that you meet all of the necessary requirements. A rejected loan doesn’t mean that you can’t get another one.
Getting rejected for a personal loan can be a stressful and discouraging experience. However, it can also help put things in perspective. And with the right perspective, you can better prepare and take on similar challenges in the future. Remember to credit rejections to new learnings and opportunity for growth. Your future self will thank you soon enough!