What are the Common Reasons Why Unsecured Loans are Rejected?

Thousands of personal loan applications are being rejected every year, yet more people still push their lucks to have extra cash even on terms of higher interest rates. However, many borrowers are wondering why lots of applications for unsecured personal loans are getting rejected even if banks post fewer requirements for this particular plan.

Unsecured personal loans, despite not having a requirement for collateral, have stricter requirements than other types of personal loans. Here are the most common reasons why applications for unsecured personal loans fail to get approval.

1. Bad credit rating.

As unsecured personal loans rely primarily on the credit history of the borrower, banks review credit records from the beginning and highly consider integrity prior to approval. Aside from already existing financial transactions, banks also delve deeper into tax dues if they are settled properly or if imminent charges are present. They see unsettled tax issues as major hindrance to your timely payment, to which the government agrees.

2. Unemployment.

Even if you have a clean credit history, your present ability to pay is still the second most important factor to look into. Although banks may earn more from fines if dues are not paid on time, the risk of totally losing their money is still increasing as delays in payment occur. The source of income is very important to determine if lending you money is truly feasible and lucrative to their business.

3. The purpose does not suit your ability to pay.

If you have an average salary, yet your purpose for filing the loan is to take a grand vacation in the Caribbean, do not expect to have your application approved. It will most probably be turned down due to lack of proper financial handling. The truth is banks want their borrowers to spend as little as possible so they can settle their bills on time.

4. Too much debt.

Many people use unsecured personal loans to consolidate debts. However, too much is also a ground for rejection. Having many debts might mean poor financial management. If you collected that many debts before, there is no guarantee that you can avoid gaining the same amount of debts now.

5. Insufficient bank account balance.

Although banks do not require collateral on this matter, they will still require you to have sufficient liquid cash to serve as buffer fund. That is the reason why banks prioritize their own depositors over new ones.

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James Henry Abrina is an editor, writer, SEO specialist and currently a Corporate Communication Professional, Market Desk Strategist, Business Development Officer and Unit Head for Business Profiles Incorporated.

He currently specializes in security management and business intelligence. Together with the company, he advocates Business Continuity Planning to change how the Philippine business sector sees the definition of crisis response and management.

For more useful information, read his articles at Invisible Squares and Masscom Tutor. Or his EzineArticles page.