5 Reasons Why Your Loan Application Might Be Rejected.
Experiencing a loan rejection at a time when you really need one can be quite devastating. Especially when you need it to secure a big project or for a good investment. Whatever it is you need it for, it’s bad to experience a loan rejection.
You may think that these banks or loan apps are not being fair to you but there are important criteria that your “loaners” expect you to meet before giving out the loan. A lot of people make errors here because these factors are often overlooked.
That’s right. Other than banks, a new wave of lending platforms is sweeping the industry. You may see them as access to grab investment opportunities or as readily-available cash givers. It is relatively easy to apply for a loan in any of the banks in Nigeria, as well as other lending institutions. But it’s also easy to get rejected too.
In this article, we will check out some common errors that you need to avoid if you want to get a loan in Nigeria.
What Are These 5 Common Reasons?
Some of the most common reasons include:
Your Bad Credit History Can Make You Lose That Loan:
Credit history is a report of all the previous loans an applicant has taken in the past. It is a record of a borrower’s responsible repayment of debts. It includes credit history from different sources.
History Of Partial Repayments:
Partial repayment is one of the factors that affect credit reports. This is bad for your credit report, avoid it as much as you can! I know you make these partial repayments to avoid loan defaults, but it affects your credit report negatively.
When lenders see this, they’ll assume that you’ll do the same to the new loan, and they may be reluctant to grant you credit.
Occasionally making partial repayments isn’t an issue but doing so frequently is. It’ll indicate that you can’t pay off the balance.
To qualify for a good loan you need to have a good credit rating. If you want to know how to have a good credit rating, check out my other posts. They’ll guide you.
All financial institutions will run a credit check to determine how much loan they can give out to you and how likely you are to repay your loan. A good credit score will give you the best chance of getting approved with a good interest rate
Your Type Of Collateral Matters:
One thing that banks do not joke with is collateral. If you want to get a good loan, then you’ll need very valuable collateral.
They are not being rigid, they are not just willing to risk lending money to businesses or individuals without some sort of reimbursement. Imagine what will happen to them if they don’t take the collateral and everyone decides not to pay back, they’ll go bankrupt right?
Your collateral, whose worth must be equivalent to your loan, is what they’ll hold on to if the loan is not repaid.
To avoid loan rejection, create a collateral document that lists everything you can put up as collateral. Remember that the worth of your collateral needs to be equivalent to the loan you intend to get.
Over-Indebtedness Can Cause Your Loan Application To Be Rejected:
This is a factor that’s often looked over by individuals but it is important to both banks and loan apps.
An applicant’s salary, account balance, or statement of account does not guarantee the approval of a loan. However, this does not mean that the factors are not important.
Rejection or denial of a loan might be due to outstanding loans on the part of the applicant.
A lender may find out if an applicant has several loan debts. This is a risk-management decision for the lender and they will not take chances.
Low Income:
All lending platforms will ask for your monthly income, they need to know how much you earn in a month. To a large extent, your income also determines the loanable amount.
Remember that lending platforms are in the business of giving out loans such that they can make returns for themselves.
The simple message is If you apply for a loan that is larger than your business or personal income; your loan application will be rejected.
Weak Business Plan:
This is the last on this list but it’s also very important to note. Especially for entrepreneurs who wish to use the loan as their start-up capital.
A weak business plan will put you at a great disadvantage.
Your business plan should be able to convince your lenders that your estimated income will cover your loan for whatever duration is given to you.
However, new business owners should not take up loans as start-up capital should in case things do not go as planned. But, what is life without risk?
Aside from your plan, ensure you have prepared your résumé, personal background, financial statements, bank statements, income tax returns, and legal documents such as articles of incorporation.
It will give you an edge.
Conclusion
Taking a loan is a delicate step, so you have to be sure and prepared.
All of the factors stated in this article are some of the key factors that make banks and other lending platforms reject loans.
Make sure to follow the process duly. It’ll help you secure the loan you need for your business or other personal purposes.