HomeFinanceWhy do banks reject loan applications?

Why do banks reject loan applications?

We live in a consumer-centric world and living in the UAE is costly. Soon loans become a requirement more than a tool to make our dreams come true. Whether you want to buy a house, car or need money for personal reasons, loans are an integral part of our existence today. The day you realize that you need financing, you do some research, finalize the bank from which you want to avail the loan, submit your application along with the required documents, and anxiously wait for the bank to credit the loan amount to your account.

Once enough time has elapsed and you don’t hear from the bank, you start the follow-up process. The worst thing to hear at such a time is that your loan application has been rejected! That’s it! That is all that the bank tells you. They don’t usually provide the reason for rejection unless it is an erroneous document or something minor that can be easily corrected. Left in the dark, you wonder why your application was rejected.

Before we look at the reasons for rejection, it is important to understand that banks will put your application through a lot of scrutiny and background/credit checks to safeguard their interests. The team sanctioning loans tries to ensure that the bank doesn’t suffer any losses due to non-payment in the future.

What are the reasons for rejection?

Once you have understood what happens behind the scenes and how banks do process loan applications, let’s look at the primary reasons for rejection.

Debt-Burden-Ratio

In simple words, the sum of all your monthly repayments and 5% of the credit limit on all your credit cards should not exceed 50% of your fixed monthly income. This has been mandated by the UAE Central Bank and all banks have to adhere to this stipulation. Remember, banks are wary of lending to people who are in too much debt already.

Credit history

Al Etihad Credit Bureau (AECB), enables lending institutions to make informed decisions while helping you understand your creditworthiness. A credit report from AECB enables banks to see all the loans and credit cards you possess and your repayment track record. Missing out on paying your installments on time can create a negative credit rating. You can check your own credit history by requesting for your credit report for a fee of around AED 100.

Employment tenure and stability

Would you lend money to a friend who doesn’t stick to a job for more than a month? Or worse, would lend money to a friend who is not on a job for quite some time? No. That is what the banks do too. Most banks lend only if you have been in your current job for at least six months and also run a background check with your employer.

Application form errors

Call it an oversight or lack of attention to detail, an error while providing your personal details can also lead to a rejection of your loan application. Usually, banks will cross-check and try to rectify these errors but it is prudent to double-check your application form before submitting it.

Depending on the kind of loan you are applying, banks usually look for certain red flags which can lead to the rejection of your application. Personal loan applications face a high number of rejections because it is unsecured finance. Before you apply for any loan, whether it is Al Hilal bank’s personal loan or ADIB’s personal loan or any other bank, ensure that you fill the application form carefully and correctly, check if you match the eligibility criteria set by the bank, and ensure that your credit standing is good to minimize the chances of rejection.

About the author

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MyMoneySouq helps the visitors to find the right financial product by comparing different products provided by various banks in UAE. It compares different loans, insurance, accounts, credit cards. It works with a goal to give the users a clear idea of what to expect out of their funds and what they can get from those.

MyMoneySouq Team
MyMoneySouq Teamhttp://mymoneysouq.com
MyMoneySouq helps the visitors to find the right financial product by comparing different products provided by various banks in UAE. It compares different loans, insurance, accounts, credit cards. It works with a goal to give the users a clear idea of what to expect out of their funds and what they can get from those.

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