(Updated September 27, 2017)
Loan rejection is a real pain, especially if you least expect it.
In a time of financial crisis (and you are not alone) all your hopes will cling onto your loan application, so make sure you avoid the common mistakes Pinoys do when getting a loan.
A lot of Filipinos have been depending on loans when they lack finances for their needs and sometimes wants. Almost 50% of Filipinos borrow cash from their families and friends. If you are one of those who would rather get a loan from a private moneylender than ask for help from your significant others, then you just joined the 13.5% of Filipinos who did the same.
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Reasons Your Loan Application Gets Declined
- Moving a lot
If you already tried applying for a loan, you will notice that the lender requires both your current and permanent address together with a billing statement to validate where you really live.
To tell the truth, there are borrowers who tend to default (never pay) their loans, and the lenders will have no choice but to send a collections officer to their homes to get their repayment. Some of these borrowers will turn into runners and move to another place to escape. Also, if you move a lot, it can indicate that you are not financially stable to stay in one place.
Some of these borrowers will turn into runners and move to another place to escape. Also, if you move a lot, it can indicate that you are not financially stable to stay in one place.
- Faking documents
Falsifying documents is obviously wrong in any way you look at it, however, there are Filipinos who still do it to try their luck and get away with it. If the lender catches you, you not only lose your chance to get a loan, you will also be marked as a red flag or worse a legal action can be filed against you.
- High debt-to-income (DTI) ratio
Moneylenders do value their business. Unlike the loan sharks who give loans to desperate borrowers to suck every cent out of them, a legit moneylender will not approve a loan to those they deem could not handle the repayments.
If you have multiple overdue loans, it is better to pay them off first before you get another loan. This is to avoid further financial strain. On the other hand, there are loans created to consolidate the borrower’s existing loans.
- Unable to meet the eligibility requirements
Lenders cater to different borrowers. Some lend to employed, others just give loans to pensioners, while some offer loans to OFWs. There are lenders which can only provide loans in a certain area.
Before you make an application, check the eligibility requirement. Most lenders in the Philippines have required age, citizenship, and source of income. If you are not eligible in one lender, then you have to look for other lenders who have eligibility you can fit into.
- Asking more than you can handle
When applying for a loan, remember to use a loan calculator to see how much you can borrow, how much you have to pay if charged with the interest rate and how much each repayment will be according to your chosen term.
You can easily see how the repayments will impact your finances and if you can actually handle it. With this knowledge, you can have an idea on how much the lender will willingly lend. There are lenders who reject applications of those who ask for very high loans.
- Unstable job history
Of course, the lender will only approve loans if they can see that the borrower has a stable flow of income to repay the loans. If you don’t have a stable job, how can you assure the lender that you can pay your loan in case you lose your job? Most lenders will only lend to applicants who have been working for their companies for at least six consecutive months.
Do not worry if you are self-employed as you can still get a loan. Just present your bank statement to prove that you have a constant income for the past six months to a year. Banks require two years.
- Not answering calls
Most lenders call their borrowers for information validation. Lending is a risky business and to lessen the risk. The lender will evaluate your information. Make sure that you have indicated your active contact numbers because some lenders lose interest to borrowers whom they could not get in touch with.
If you are asked to give some contact persons as references, do not hesitate to give your references a heads up. It is fine to tell them that a loan manager or loan verifier will call them regarding your loan application.
Do not hesitate to tell your lender on what you plan with the cash you are borrowing. Lenders usually have various loan solutions for different purposes, and a good lender will direct you to the right one that fits your need.
- Incomplete documents
Lenders will not start the loan process whenever there is a lacking document or the submitted documents are not clear. They scrutinize these documents to validate your information, so failure to comply will mean that your application will not push through.
- Inconsistencies with your information
With the use of submitted documents and interviewing your character of references, the lenders can draw their conclusion on your creditworthiness. Inconsistencies of your data in your filled up application form, documents and IDs will create confusion and a notion that you are not credible.
- Bad credit report
Republic Act No. 9510 also known as Credit Information System Act mandates banks, authorized lenders, and other financial institutions to submit their borrowers’ payment behavior into a centralized system kept by Credit Information Corporation (CIC).
Once you apply for a loan, banks and other moneylenders use your credit history found in the centralized system. They get an idea of your paying habits. If you have missed your payments for your previous loans, this will alert the lenders that you might also do the same in your future loans.
This is why it is important to pay your loans diligently. Failure to pay your loans on time can hurt your credit report. Other factors that can bring it down are default loans, tax evasion, and money related offense such as estafa.
It could take years to rebuild a positive credit report.
Your credit report can usually mean your credibility as a borrower. Payment behavior, both positive and negative, is recorded and this will make up your credit history.
However, the credit score marked by lenders is not the only factor that can affect your loan application as seen on the list. Even if you have good credit score, if you have done one or two things on the list, then you might also end up rejected.
When getting a loan, it is your responsibility to show the lender that you are worth the credit.