Personal loans have always had this negative stigma—it is the year 2018! Personal loans are a great and highly available tool that anyone can use to jumpstart their financial success! While lenders are still out there with money to lend out, they don’t just give it anyone with an application.
As information is readily available on the web and through a personal phone call, it is important to understand what you will need to avoid getting rejected from your loan application. Today, we will discuss the mistakes you need to avoid when it comes to your personal loan applications!
Terrible Credit History
If you have a history of defaulting on payments, missing payments on your utilities, and other financial obligations, chances are your credit score is low. When your credit is bad, there is an almost immediate chance of you getting rejected for your personal loan.
Banks and lending institutions will not give more money to a person who has a proven history of financial mismanagement. Let’s say you don’t know if you have bad credit or not, what do you do?
Get your more recent credit report from a credit bureau
If you aren’t familiar with the concept of a credit report, it is a summary of your bill payment history, any loans (past and current) and their status. This will also record your places of employment, any history of lawsuits or arrests and bankruptcies.
There are several choices for a credit bureau that you can approach like Experian or TansUnion. If you haven’t been reading the news lately, it would be in your best interest to avoid Equifax. These institutions are bound by law to provide you with a free copy of your credit report once a year. Once you have your credit report, determine if it’s in good shape. If it is, go ahead with your application.
If your credit score, however, is looking a little worse for wear, it would be in your best interest to get that sorted out. If you aren’t sure how you can go for financial counseling. Doing so will provide you with some clear avenues to pursue in order to rehabilitate your score. This may take time so you may want to focus on that instead of looking to take out a personal loan.
Lenders only approve loans for individuals who have a proven track record of financial capability. If they see that you do not have a steady source of income, they will decide that you are not worth taking a chance on. When taking out a personal loan, there will be a minimum annual income that you will need to reach. If you aren’t able to do so, there’s a big chance of getting rejected.
Lending institutions will need to see that you’re able to pay back what you’re borrowing. So if you have a history of unstable income, your approval isn’t looking very good.
Unstable Employment History
Lending agencies will always request for copies of your payslips so it’s fairly hard to fake that one. They will also get in touch with your employers in order to fact check you. Lenders value individuals who are able to hold on to one job for several years. This shows the commitment and dedication.
If they see that you’ve hopped from one job to another in a span of a few months, they may start to question your ability to commit. Also, this also suggests that you have unstable income (discussed above). Lenders need to see that you’re able to hold down a job long enough to establish a good record. You also need to have a clear reason for any job transfers or change of careers. If you are not able to do so, they may not look at your application quite as favorably as they would if you had a steady employment history.
Unclear Loan Purpose
One of the first things that they will ask you is what you need the personal loan for. The last thing you want to answer is to “pay off another debt”. That would be like telling people you run a Ponzi scheme and still expecting them to give you money.
A clear reason will enable your lender to check if the amount you’re asking for is suitable for the purpose that you’re aiming to use it for. Depending on the lending agency, they may require to know what you’ll be spending the money on in order to see if you’re a good fit for a secured or unsecured loan. What a lot of people don’t realize is that secured loans can only be used specifically for a set number of assets like cars.
If you want to be approved, have a clear reason for needing the money. That way, they’ll have a better chance of approving your application.
Depending on the type of personal loan you’re getting or the amount of the loan itself, the lender (usually banks) will want to see if you have any secured assets. This can be your home or your car. If you do not have either, there is no justifiable reason why they should lend you money.
Lenders are all about calculated risks. They will not risk their collateral for something that could possibly never return. If you do have some assets but they are deemed too low in value, the same thing applies.
Not Reading the Fine Print
If you do get approved, it is important to read all the fine print of your contract. You may not realize that there are details in there that aren’t in your favor like the sneak increase of interest rates (which have been known to happen in lenders that aren’t banks).
It is important to protect yourself by seeing the terms of the loan, the terms of payment, and possible other ramification of getting this personal loan out.
With all this in mind, you’ll have a better idea of what to avoid when applying for your personal loan! Best of luck on your application!