By Angelique Ruzicka, editor, Justmoney
Every day companies reject thousands of loan applications. Wonga’s CEO Kevin Hurwitz admits that the short term loan provider rejects between 65-75% of all new customers. So if you have received a rejection letter you are not alone.
Banks and other lenders are often hesitant to divulge the reasons for rejection as they all have their own secret approval systems that they keep close to their chest so that competitors don’t steal or emulate their formulas. “The rules differ from company to company,” explains Hurwitz.
But there are some common reasons why some companies may reject you for a loan:
1. Poor credit score
If you have managed your debt poorly it will reflect on your credit score which is maintained by credit bureaus. Lenders have access to these records and if they don’t like what they see you will be rejected. You are entitled to one free report from each credit bureau so get one today to see if your record is clean.
2. You are blacklisted, on debt review or had a judgement against your name
“If are blacklisted, going for debt counselling (review) or had a judgement against your name you will be automatically declined for any loan. Under the National Credit Act it is illegal for lenders to offer you credit under these circumstances,” says Hurwitz.
3. Garnishee orders
A garnishee order is a court order which allows your employer to make deductions off your salary to settle debt that you owe a third party (a bank, short term loan provider, store account, etc). It shows you are already a poor payer and will more than likely reflect on your credit record. If lenders see this they won’t lend you more money.
4. You don’t have enough income for the loan you requested
Reputable lenders will conduct an affordability assessment on you which will give them an idea of whether you will be able to cope with the loan repayments. If they find that you have too many liabilities (too may outstanding loans, bills and other commitments) they are not likely to give you credit.
5. Your job history or type of job may be the reason
Some lenders don’t like lending money to people that may potentially not have a stable or future income. So freelancers, contractors and even small business owners may find it difficult obtaining credit. “We won’t always reject someone if they are a contractor. We will look at the type of job and evaluate how sustainable it is. If you are an engineer for example, which is a job that can be in high demand we will generally accept your loan application,” explains Darryl Lahner, head of credit and pricing at FNB Home Loans.
If you are a serial job switcher you may also not be looked upon favourably because it could lead lenders to believe your job security may be in jeopardy.
If you haven’t been in your new role for long enough you may also be rejected because lenders need to see at least three month’s worth of bank statements to review your expenses. They will also prefer to only lend you money once you are over your probation period.
6. You don’t have a credit history
You may think that if you’ve never taken out a loan before that this would be thought of as a good thing. But if lenders have no way of gauging how good you are at paying your outstanding loans then they will be hesitant to lend you money. Open a store account or apply for a credit card at your bank. Make a small purchase and be prompt with your repayments. If you build up a good credit history then you will get lenders on your side.
7. You may have provided incorrect details/lied on your application
When it comes to filling out your application form you have to be truthful. Don’t overinflate your earnings and be honest about who you owe money to. If you lie you will be rejected for a loan or worse – charged with fraud.
8. Your age
If you are under 18 years you definitely won’t get credit. However, you can also be too old to lend to. Lahner explains: “When it comes to mortgages, lenders don’t lend you money after you’ve hit the age of 75.”
But you may still qualify for short term loans if you are over the age of 75. “You can’t discriminate on age. What we do look at is if you are earning an income and, in reality, there are few people over the age of 75 that are earning an income as they are retired. However, if you are still working and over the age of 75 you could qualify for a loan,” says Hurwitz.
9. Concentration risk
This is a technical term. But it’s something mortgage providers are concerned about when they see an application from someone who wants to buy a home in a sectional title complex.
“We don’t take more than 50% exposure in a sectional title complex,” says Lahner. He explains that some body corporates may not have a favourable balance sheet, i.e. they could be in debt and this may in turn affect your ability to repay your mortgage. Banks don’t want to over expose themselves to many applicants that may not be able to pay.
“Special levies get preference over bond repayments. It’s rare, but it can happen that badly managed body corporate up their fees so they can repay their debts. Also we worry about the value of new developments. If they are not completed their value can drop drastically, leaving the homeowner in negative equity and unable to sell their home for the amount that they paid for it if they get into trouble and can’t afford their repayments anymore.”
10. Too low value found in property
Estate agents or sellers may be selling the home that you applied for at an over-inflated price. “If our valuation is significantly below the purchase price then you may get rejected for a home loan,” says Lahner.
If you have been rejected for a loan it’s key to find out the reason behind it. “Get your credit score from a credit bureau as this could give you a clue as to why you got rejected. If there is nothing wrong with your profile contact the lender to find out what the reason could be,” advises Hurwitz.