1. Don’t Have a Steady Job
Job hopping or unstable employment is one of the reasons for loan rejection. To banks, job stability means that you are able to pay your dues without fail. Some of the banks have set requirements such as “at least one year in the current job” or “two years of total work experience” as their eligibility criteria. If you have the tendency to change your job every six months or more, you won’t get any good news from the bank you applied with.
For freelancers or self-employed individuals, this can be a problem. However, you can resolve this issue by providing concrete financial documents like income tax documents, bank statements and other proof of income.
2. Applied For Loan at the Wrong Bank
When it comes to details of requirements, different banks have different approval criteria, while still sticking to the general guideline set by Bank Negara Malaysia. It could be that you’re not meeting the minimum age requirement, not in the right income band or the bank doesn’t offer to finance on such property/at that particular location.
It’s advisable to apply to at least three banks when applying for a loan so that you can choose the one that gives the best offer. Also, in case any of those banks reject your application, you still have backup options. However, do take note that getting too many rejections is not good for you either. Just so you know, each loan application and rejection gets recorded on your credit report that in turn, affects your credit score and your loan approval chances.
The best thing to do is keep your CCRIS report clean, as it will ensure the banks favour you. Additionally, you can use Loanstreet’s comparison tool for a personal loan, car loan or home loan before applying, to see which bank fits you best.
3. The Developer or Their Project Is in the Bank’s Blacklist (Home Loan)
For those who’ve applied for a home loan (also known as a mortgage), sometimes the loan rejection has got nothing to do with you but with the property developer. FYI, banks have their own blacklisted developers to keep track of. This can be due to many reasons - it could be that the developers have pending litigation cases, the banks have had bad experience being a panel to the developer in their previous projects, the project is located at a natural disaster-prone area or it has no strata title after 10 years.
This is out of your control but what you can do is to do your own research on the developer and their projects before applying. To know which developers are blacklisted, you can check out our previous article - Avoid Being Cheated by These BLACKLISTED Property Developers! If you’re certain about the developer’s credibility, another thing you can do is to check with other banks.
4. Too Many Loans/Commitments
Banks are unlikely to give you a loan when they find out that you have too many financial commitments to be paid monthly such as credit cards, car loans, study loans and personal loans. They’re able to track your monthly commitments via your CCRIS report which then affects your debt service ratio (DSR).
Although different banks have different DSR cut-off rates or caps such as 60%, 70% or 80%, you have to make sure that your DSR doesn’t exceed 60% of your net salary as a general rule. Anything higher than that, the likelihood of your loan getting rejected is high.
If you really need the loan, do consider taking a longer tenure to reduce the amount you pay monthly. You can also talk to the bank that you’re applying on how it calculates your monthly commitment. By doing so, you can find a way to improve your DSR ratio.
5. Don’t Have a Good Credit Score
Based on the CTOS and CCRIS reports, the bank will be able to trace any late or overdue payments; and whether you made minimum payments or the full payment. It also tracks your outstanding balance for the month. From here, the banks are able to evaluate your credit risk and gauge if you’re responsible, as well as a reliable borrower, before approving your loan application. If your credit score is poor, the bank will not trust you - hence, rejection.
So, what can you do to fix this? First, stop applying for loans because you don’t want to make things worse. Then, head over to Bank Negara Malaysia to get a copy of your credit report so that you can check if it’s accurate. The next best thing to do is to stop spending and pay off your debt and bills on time. Of course, your credit score won’t improve straight away, but keeping this habit will eventually help in the long run.
6. No Credit Record
Some of us avoid having credit cards and other financial commitments because we’re scared of overspending. Although this is a good thing, it will not help you get your loan approved. This is because without past repayment records, the bank will not be able to know whether you are a good paymaster or vice versa.
Hence, do consider credit facilities such as credit cards for recording purposes. Besides that, you can also utilise one of the financial facilities of the bank you are applying for a loan from, i.e. savings account or a fixed deposit account. This will help increase the bank’s confidence to approve your loan application.
7. Not Eligible for the Loan
Banks would usually look at your current income and financial commitments to gauge what’s your payment ability. If your income isn’t enough to accommodate the equated monthly instalments (EMI), then your chances of getting a loan are low.
If you’re getting a mortgage, it’s better to speak to the bank’s representative and ask for their advice on the properties and price range that would suit your repayment capacity. Another way to approach this matter is to have a joint borrower because there are two sources of income to repay the mortgage. You can opt to have a quick eligibility check here.
8. Didn’t Submit the Right Documents and Details
Sometimes lack of necessary documents or incorrect details can lead to rejection. This is why it’s important to make sure the application is done correctly so that you can avoid unnecessary hassle. So, double-check your application form to ensure that it’s filled correctly and submit all required documents to the bank’s representative without fail.
Below is the basic list of documents required for any type of loan:
- Complete and accurate application form
- A copy of your NRIC (make sure it is clear)
- Income documents (3 to 6 months’ pay slips, salary crediting bank statements, EA form, appointment letter, commission statements, B /BE form and more)
So, What Should You Do Next?
There you have it - the possible answers as to why your loan got rejected. Don’t give up just yet! As an applicant, understanding these reasons are vital to prevent time wastage and the possibility of rejection. Not only that, it also helps you to recognise and pinpoint certain areas of your financial life that needs improvement.
Here are steps that you can take after the rejection:
- Check with the bank why your application was denied.
- If the rejection is based on minor errors, then correct them.
- If it’s due to a poor credit report, get a free copy of your report and see what can be improved.
- Talk to the bank representative to see what you’re actually eligible for.
- Apply for a new loan.