How to Avoid Loan Rejection

If you are looking for simple and easy steps on how to avoid loan rejection, then this article is precisely what you need to read.

The pains accompanying loan rejection can be excruciating sometimes, and we understand that perfectly. Imagine having a burden that needs funds to lessen for your loan application to be rejected.

This can be averted if you follow the steps we shall outline below. Be sure to keep reading.

How to Avoid Loan Rejection

Here is the most exciting part of this article. The steps below will guide you to avoid loan rejection.

  • Have a reliable source of income.
  • Have good credit history.
  • Have valuable collateral.
  • Evaluate your debt-to-income ratio.
  • Get your required documents
  • Avoid loan purpose mismatch
  • Avoid too many applications.
  • Ensure you are not owing
  • Have a good guarantor
  • Ensure you are not blacklisted.

The above are practical ways to avoid loan rejection either from the bank or from any lending app. Let’s quickly evaluate each.

1.Have A Reliable Source Of Income

The first step to avoiding loan rejection is ensuring that you have a reliable source of income.

This means your income should be able to pay off your debt. This is because, for every loan, there is a minimum income requirement. And if this income requirement is not reached, one’s loan application can be rejected.

You must understand that the bank or lender needs to ascertain that you can repay your loan. Hence, they place a minimum income requirement. At least they are not giving out funds to unemployed fellows.

2. Have A Good Credit Score

The next step is to have a good credit score. Of course, even a dumb know that what is good is good.

Bad credit history can cost you a lot of opportunities, and loan rejection is not an exception. If you have a bad credit score or history, the best is to fix it before applying for a loan from any bank.

3. Have Valuable Collateral

Most banks and lending platforms demand collateral before issuing loans to customers. A collateral is a property or anything worth the loan you are applying for. For instance, you require a N2,000, 000 loan. You should have a property that is worth two million or above it.

This collateral can be a car, a house, land, or whatever. Provided that it is equivalent to the loan amount, it is collateral.

The essence of equivalent collateral is to help the bank or lending platform recover their money if you do not repay your loan in due time. Hence, your loan can be rejected without valuable or equivalent collateral.

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4. Evaluate Your Debt-To-Income Ratio

Sincerely speaking, this is the first thing you should do before thinking of applying for a loan in any bank in Nigeria. The debt-to-income ratio evaluates if your income can pay off your debt when due.

For instance, a person earning N100, 000 per month should not go for a N5, 000, 000 worth loan with a repayment plan for one year.

This is because the income can not pay the loan when the time comes. This is why banks thoroughly investigate the debt-to-income ratio before approving your loan.

This hinges on the first step we shared, which is to have a reliable source of income. So is your debt-to-income ratio favorable or unfavorable? If not, your loan application is bound to be rejected. Keep off!

5. Get Your Required Documents

Incomplete documents may lead to your application getting rejected. Banks often give out a list of required documents before granting your loan approval. This does not only apply to banks, lending platforms, and other financial technology companies do this too.

They draft out a list of documents that must be submitted before they approve your loan application. Some of them include the following;

  • A passport photograph
  • A valid means of identification. This could be your voter’s card, driver’s license, or passport.
  • A Bank Verification Number (BVN)
  • A statement of account showing that you have received the money in the last three, six, or even twelve months.
  • A reference form
  • A recommendation letter from the employer.
  • And so on.

Each bank or Fintech company has its requirements or criteria. Ensure that the documents are complete and every instruction is carried out.

6. Avoid Loan Purpose Mismatch

Avoiding loan mismatch is another way to avert loan rejection. Ensure that the purpose of the loan is clearly stated and that everything is rightly spelled out. Once there is a mismatch, your loan application will likely be rejected.

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7. Avoid Too Many Applications

Applying for a loan too many times within a short while can lead to loan application rejection.

If you apply for a loan and it gets approved, the best to ensure you have cleared your debt or at least have paid half of the loan before applying for another loan.

Too many applications will affect the reliability of your income and your debt-to-income ratio and also place you below the minimum income requirement.

This leaves the bank with no option but to reject your loan application. To be safer, apply for one loan at a time. Above all, pay off your debt before applying for another loan.

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8. Ensure You Are Not Owing

Being debt free is another feeling on its own. It gives you the confidence to submit your loan without fearing rejection.

If you owe other lending platforms or banks, the chances of your loan application being approved are slim.

The lender may see it as a threat and incapability of repaying your loan. Therefore, ensure you are debt free before applying for any loan.

9. Have A Good Guarantor Or Co-signer

Most banks will ask for a guarantor, Co-signer, or trustee before approving your loan application. If you must present a guarantor, ensure that they are of an unquestionable character and have no trace of any criminal involvement. A bad guarantor can disqualify you even if you have taken the eight steps discussed earlier.

10. Ensure You Are Not Blacklisted

This happens mainly with loan apps. Physical banks are also doing it but subtly. One of the significant reasons that may lead to you being blacklisted is your inability to pay off your loans.

This may force the loan app to submit your details to Nigeria Credit Bureau, which then blacklists you from borrowing from other apps.

Most times, the bank may come after the equivalent collateral or blacklist you too. The bleeding edge is that others will not accept your loan application.

Reasons Why Your Loan Application Is Rejected

Your loan application can be rejected for many reasons. And in the section above, we showed you simple steps to avoid loan rejection.

However, it is also good if you get to know some of the reasons why your loan application may be rejected. Below are some of them;

  • Poor credit score or history is one of the top reasons that may lead to your loan being rejected.
  • Insufferable cash flow is another reason for declining your loan application. This happens especially in business loans. If there is insufficient cash flow in your business, your application may be rejected. This is why banks request a statement of cash flow before the issuance of loans.
  • Heavy debt is another compelling reason behind loan application decline. Build a healthy debt for your business and personal interest.
  • Incomplete documents are there too. The bank often gives a list of documents to be submitted to the borrower. Submitting incomplete documents will undoubtedly fetch you a rejection.
  • And too many applications in a short while.

What To Do After Loan Rejection

If your loan application is rejected, do not beat yourself up. You may try to do the following;

  • Find out why your loan was rejected. This can be verified by talking about it with your lender. We are confident they have an explanation for their action.
  • Take corrections to avoid further rejection. Ensure that the reason for the rejection is identified and dealt with before applying for the second time.
  • Use short-term strategies like Co-signer, collateral, and down payments.

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The Five C’s Of Loan Application And Approval

These are the five factors most lenders consider before approving loans. They are;

  • Credit
  • Capital
  • Condition
  • Character


This comprises the credit history or score of the borrower. A poor or bad credit score limits one’s chances of securing a loan.

2. Capital

This pertains to businesses majorly. The capital of the business or the income flow of the borrower affects the eligibility or approval of the loan application.

3. Condition

This covers the condition or terms of the loan application. The bank or Fintech company thoroughly evaluates the conditions surrounding the loan.

4. Character

This is about the reputation of the borrower. Are they reliable?. Here, the lender investigates the credibility or trustworthiness of the borrower before the loan is approved.

4. Collateral

Sure, collateral is needed to secure some personal and most business loans. Hence, the lender ensures that the collateral is valuable or equivalent to the loan amount.

Bottom Line

Loan rejection can be avoided. And this we have done justice to in this article. Meeting credit and minimum income requirements, having equivalent collateral, and submitting complete documents are some of the steps we discussed.

We also outlined the reasons loan applications are rejected and possible actions to take after loan rejection.

We crowned it with the five C’s of loan application and approval, and we are confident that this article has been of great insight to you.