Even with a file deemed acceptable, it’s quite possible to suffer a personal loan rejection from a banking institution. And although each lender follows their own rules when granting a loan, it’s clear that the same reasons are often behind a negative decision. Here are the 5 most common personal loan rejection reasons.
A low credit rating or a lack of history
At conventional banking institutions, a low credit score almost systematically leads to a loan rejection, even when the borrower has sufficient income and little debt. As a lack of history also results in a low credit rating, newcomers to the credit market are also usually denied their loans for this reason. In this case, the only solution available to the borrower is to submit a no credit check loan application to have a chance of obtaining financing.
Too little income
Even if you don’t have any debt, it will be hard for you to obtain a loan if you have a low income—for example, because you work part-time. Indeed, lending institutions—especially those that grant no credit check loans—generally require a minimum income of $1,200 per month.
Even if you have a comfortable income, the lender may deny you a personal loan if they determine that your debt may become too high with this new commitment. Banking institutions usually consider that the debt ratio must be between 32 and 40% of the total annual income. In case of a rejection for this reason, the only solution is to wait until you can pay off some loans—preferably those with the highest interest rates—in order to reduce your debt ratio and be able to submit a new personal loan application. And even if you have a low debt ratio, a lender may also deny you a personal loan if they notice on your bank statements that you are repaying a microloan or a payday loan. It’s therefore best to pay this off before filing a personal loan application.
A history of unpaid bills
When a lending institution analyzes a client’s file, it carefully examines their last few bank account statements. That way, they can verify the amount of income earned and the loans being repaid. But it’s also a way for them to detect if the borrower has had unpaid bills over the last three months. An incident of this type usually leads traditional banking institutions to reject a personal loan application. Some lenders who grant no credit check loans may tolerate one unpaid bill over this period as long as the borrower’s file is good besides that.
A recent change of employer or address
If your seniority in the company is less than six months, if you have moved in the last three months, or if your chequing account has been open for less than 90 days, you risk suffering a personal loan rejection from the banking institution with which you are filing your loan application. Indeed, to grant a personal loan, conventional institutions such as private lenders usually require that you have been with the employer and at your home address for six months and that your chequing account has been open for more than three months at a Québec branch.
Lenders don’t simply stop at the amount of income earned when granting a personal loan. Indeed, they may reject the borrower’s application for other reasons, especially if their credit rating is low, their debt is high, their history shows recent unpaid bills, or their seniority in the company or at their home address is insufficient