5 Lesser Known Reasons for Loan Rejection


Receiving a rejection letter is upsetting, especially if you have poured a lot of effort to get that yes. Borrowers should realize that lenders don’t quickly give approval in regards to the mere completion of documentary requirements or passing the interview. Companies have their structure of verifying eligibilities, and we’ll never know what are those exactly.

However, if you plan to get a loan such as a business loan or car financing, you should be extra prepared for the assessment. Check these lesser-known reasons for loan rejections to set your expectations.

1. Job Hopping Habits

Job hopping has become a habit of the new generation. The previous studies revealed the majority of the employees are in favor of this action. Cited reasons include the escape of pain or leaving for better pasture. It’s even a way of raising one’s salary quickly. While job-hopping appears to be reasonable, too much of it stains your credentials at work. To some extent, it also impacts your creditworthiness.

Consistent job shifting signifies instability. From the perspective of a lender, a job hopper is a risky borrower. He or she most probably can’t afford to pay the loan because of the loss of steady employment or income. Ideally, the good history of a borrower shows continuous employment in the same company for two years and there’s a steady or more favorably rise in the borrower’s pay.

2. Living on a Defaulter’s Residential Address

Though this may sound incredulous, one of the lesser-known reasons for loan rejection is possibly your residential address. If you live under the same roof with a person tagged by credit bureaus as delinquent, your approval rate will be compromised. The situation gets worse if the defaulter in that residential address is related to you.

On the other hand, don’t stress out yourself. You can always sort this out with your relationship manager at the preferred bank. Inform the personnel that the defaulter was a previous tenant (if applicable) in the subjected residential address. Support it with documents when possible. Then, indicate that the defaulting relative is not dependent on you.

3. Being a Co-Maker with a Defaulter

Another threat to your loan application is related to reason number 2: co-signing a loan of a reported delinquent. This applies to whatever the loan it was (car loan, home mortgage, student loan) and whoever the borrower was (colleague, siblings, or organization member). The red flags can be passed on to you if your signature pops into the defaulted loan.

It is common knowledge that co-makers affect each other’s credit history. If one of you keeps a clean record, you cushion the other party’s failure. On the other hand, the bad credit behavior of any of the co-makers drags down the other’s credit report. Even if you are not the primary holder of the account or loan, co-sign with caution. If the person asking for a co-maker seems to have issues with handling financial obligations, better steer away.

4. Multiple loan rejections

Some lending entities, especially banks, perform credit checks to assess the risk of giving you the money. The credit report has all your financial details and transactions. If it appears that you have applied for several loans and all of them received a denial, this gives an impression that you are not credit-worthy.

To avoid this scenario, always measure your needs and identify your goals in taking a loan. Assess the pros and cons and whatnots involved in a loan you intend to apply for before sending the form. Better have yourself pre-evaluated or get feedback from the lender before sending a new application to another entity.

By knowing the specific reasons behind the lender’s denial of your interest, you can now fix what hinders you from obtaining a yes.

5. Profile not suitable to the lender’s internal policy

Another reason is simply your profile being not fit for the company’s policies. Every financial institution structured its internal policies, and each one has differences from the others. There are a lot of people who want to borrow money, but only those who pass the lender’s targeted borrowers can be approved. Variables may include income requirements, geographic areas, debt profiles, or lack of credit activity.

The best way to turn this rejection around is to discuss it with the bank or the lender. Present documents, proof, or security more than what is usually required to establish your creditworthiness. This a time also to ask what should be fixed, improved, or done to get approved. Utilize your negotiation and soft skills. In case this doesn’t work, find another lender whose customer demographics fit you.

Yes, you know about the requirements in an application and complied. But how about these lesser-known reasons for loan rejection?