Personal loan application rejection: What’s next?
Having a personal loan application rejected can be a frustrating experience. So what should you do if it happens to you?
What is a personal loan?
A personal loan provides you with the money you need for purchases other than a home or investment property.
You can use a personal loan for things including, but not limited to:
· Home renovations.
· Cars or boats.
Because they tend to offer lower interest rates than credit cards, they are also often used to consolidate debt.
How are personal loan applications assessed?
Understanding why you were denied a personal loan begins with knowing how a personal loan application is assessed. If you apply for a personal loan, one of the first things a financial institution will consider is your credit score.
This is a numerical representation of the risk associated with lending you money. It considers every time you’ve applied for finance over the past five years, along with any judgements, payment defaults or late payments of more than 60 days over the same period.
On top of this, your lender will consider your capacity to repay the loan by assessing your earnings, expenses and other debts. Try our Budget Planner to get an understanding of your financial situation.
What to do when your personal loan is rejected
Receiving a rejection is not necessarily the end of the road when it comes to applying for finance. Different lenders have different lending criteria, so you may be successful with another personal loan application.
That said, applying for credit multiple times – and being rejected multiple times – may affect your credit rating and make obtaining a loan even more difficult in the future.
Often the best thing to do is to repair your credit history and increase your credit score by proving that you can be responsible with credit over a period of time. This may include but not limited to:
· Setting a personal budget and doing your best to stick to it.
· Paying your bills on time or even having them auto-deducted.
· Consolidating any debt into one loan, if possible.
· Avoiding taking out more credit.
· Speak to a financial counselor.
Choosing a personal loan
If you decide to apply for another personal loan, you should always consider what's on offer. When you do, make sure you review:
· Interest rates: Especially the comparison rate, which shows the true cost of servicing the loan.
· Repayment flexibility: Some loans will charge you a fee for making additional repayments.
· Fees and charges: Things such as accounting fees, late payment fees or insurance fees will impact your loan amount.
· Loan periods: The length you need to pay off the loan, which should be based on how much you can afford to repay each month.
Once you’ve done this, ensure you meet the financial institution’s lending criteria before applying.
If you’re ready to take out a personal loan, let InfoChoice help you compare personal loans.