Why banks reject loan applications?
Let’s try to take a look at credit process from lender’s perspective and consider the most typical obstacles. Plenty of reasons may force lenders find your credit application risky and reject it. Apart from the obvious reasons, such as young age (below 18 years), absence of legal residency or mental incapacity, there are nuances that can vary depending on the context of your request.
Both business and personal loan application processes include obligatory check of your credit history report that it why it is so important to take care of it and be watchful with your bank accounts to avoid identity thefts.
Business loans
When you strive to borrow money to develop your business be ready that banks would check not only your company, but your personal creditability as well. Poor collateral, company’s brief experience in the industry, weak cash flow, economic crisis and bad reputation of the business owner are the typical explanations of rejection.
Although stereotypes say it is impossible for small businesses to borrow money from traditional lenders, today large banks such as Chase, Bank of America City have special credit programs for small entrepreneurs and professionals. The alternative option to compensate the shortage of capital is to borrow from micro-lending organisations designed especially for those who don't feet into the mainstream loan requirements.
Personal loans
Lenders typically approve first and second mortgage, car loans and consumer credit cards to those clients who can prove their reliability by good credit report and stable, legal source of income.
The most popular reasons why individuals’ applications get rejected are, of course, bad credit history, inadequately large sum of request, illiquidity of purchasing property (in case of mortgage), absence of guarantors and stable job, as well as disproportion between the loan and the size of your deposit account.
Commonly, lenders’ websites have a prequalification request form, which may help to estimate the chances of getting a loan. Remember that personal conversation can play the key role in obtaining approval on your credit application so make sure that you look and communicate like someone you yourself would trust and borrow.
