Applying for a personal loan is one of the fastest ways to obtain additional funds – whether for debt consolidation, covering financial emergencies, or meeting personal needs such as large purchases. However, not all applications will receive approval easily.
If you've just received notification that your loan application has been rejected, don't panic because you're not alone. Many applicants experience the same situation, and rejection usually occurs for specific reasons that can be identified and corrected.
What's important is understanding why your application was rejected and taking corrective steps before trying again. With the right strategy, you still have a chance of getting approval on the next attempt.
Whether you're planning to reapply or simply want to be better prepared, continue reading to learn the right way to rebuild your loan eligibility.
Why Was Your Loan Application Rejected?
Rejected loan applications usually stem from financial factors that concern banks. By identifying the root cause, you can take more targeted action to improve your chances in the future.
Low Credit Score or Poor CCRIS Report
Low credit scores usually occur when you have a record of late credit card payments, overdue accounts, or accounts that have been closed but still have outstanding balances. Financial institutions use this score to assess your risk level as a borrower. If your credit score is poor, banks might consider you less disciplined in financial matters and high risk for loan default.
DSR (Debt Service Ratio) Too High
DSR is the percentage ratio between your total monthly debt commitments and your gross income. If this ratio is too high, it means your income isn't sufficient to cover existing debt along with new loans. For example, if DSR exceeds 60%, banks might reject the application because they're concerned you can't afford to repay additional loans.
Irregular or Too Low Salary
Inconsistent income such as freelancers without clear and fixed salary statements often face difficulties getting loan approval. Similarly, low salaries can affect chances because they're not enough to cover financial commitments.
Short or Unstable Employment Record
If you've only been working for two or three months and are still in the probationary period, your loan application might be rejected. Financial institutions are more comfortable with applicants who have stable and long employment records because it shows financial stability.
Incomplete or Inaccurate Information in Application Form
Errors such as wrong telephone numbers, incomplete or missing supporting documents, and inaccurate information in application forms can cause your application to be rejected. Ensure all required documents are complete and the information provided is accurate to facilitate the approval process.
What Are the Next Steps to Improve Approval Chances?
Before trying to reapply, take time to understand the cause of failure and refine your next steps. Here are actions you can take to improve:
Check Your Credit Report
You need to check your CTOS or CCRIS report immediately. Through the eCCRIS portal, you can access your own credit report for free. Check carefully all information such as debt balances, payment records, and previous applications. This step is very important so you can identify if there are errors or things that need to be corrected in your financial record.
Improve Your Credit Score
Ensure all outstanding balances are settled immediately and avoid new debt until your score improves. If you have loans or bills to pay, ensure minimum payments are made on time to avoid late payment records. Disciplined bill paying consistently will have a positive effect on your credit score.
Reduce Commitments or Increase Income
Settle small loans first so monthly burdens are reduced. At the same time, you can try to increase income by doing side work such as freelancing or small business. This additional income can help rebalance your Debt Service Ratio (DSR) to be lower and attract financial institutions' attention.
Complete Supporting Documents
Ensure you keep financial records neat and consistent. This includes ensuring your bank account is active with clear transactions, keeping current salary statements, and supporting documents such as EPF statements or income tax statements for those who are self-employed or freelancers. Complete and neat documents facilitate the loan application process and increase banks' confidence in your ability to repay loans.
Apply for Loans Suitable to Your Eligibility
One major mistake is applying for loan amounts that don't match your salary or commitments. For example, if you earn RM2,000 monthly and already have existing commitments, applying for a RM50,000 loan might not be suitable. Banks will calculate your DSR, so ensure your application matches your financial capability.
Use Platforms That Can Help Match Loans to Your Profile
If you're unsure which loan is suitable, use tools like RinggitPlus Recommendation Tool. We can help match loan options based on salary, credit score, employment status, and current commitments. This not only saves time but also reduces the risk of applications being rejected for not meeting basic requirements.
Consider Cooperative Loans or Secured Loans If Standard Loans Fail
For those working in the public sector, cooperative loans are usually more flexible in terms of conditions and approval processes. Meanwhile, secured loans (such as asset collateral or fixed deposits) can be an option if you want to increase approval chances even if your credit score isn't very good.
What Are the First Steps to Take When a Loan Is Rejected?
When your loan is rejected, feeling disappointed is unavoidable. However, it's important not to panic and continue taking the right steps to improve your chances of getting loan approval.
Avoid Making Random New Applications
After your loan application is rejected, the first thing to avoid is making random new applications. Many applicants will continue sending applications to various financial institutions in a short time because they're worried about not getting approved.
However, every rejected application will be recorded in credit reports and this can lower your credit score. So, it's better to fix the cause of rejection first before trying again.
Avoid Dealing with Unauthorised Agents or Fake Offers
Be careful of individuals or agencies that promise 100% approval with an advance payment. This is a common scammer modus operandi trying to deceive desperate applicants. Ensure all loan dealings are done through official bank channels or licensed financial institutions only.
Don't Ignore the Cause of Loan Rejection
Every rejection has its own reason, such as low credit score, incomplete documents, or unstable income. You can contact the bank for an explanation or check CCRIS or CTOS reports yourself. By identifying the real cause, you can take appropriate corrective steps so approval chances for the next application are higher.
When Is the Right Time to Reapply for a Loan?
Don't rush to reapply for loans immediately after rejection. Take some time to improve your financial record first. Here are some indicators of the right timing:
Wait at Least 3 to 6 Months
If rejection occurred due to low credit score or arrears, use this time to settle outstanding payments and ensure all payments are made on time. For applications rejected due to DSR (Debt Service Ratio) being too high, try to reduce monthly commitments or increase income before reapplying.
When Credit Score Has Improved
Credit score plays a big role in bank assessment. You can check your credit score for free through platforms like eCCRIS or CTOS. If you see improvement in terms of more consistent payments and no new arrears, this indicates your score is getting healthier. Banks are more inclined to approve applications from individuals who show discipline in financial management.
When DSR Returns to a Healthy Level
Healthy DSR is usually below 40%. If this ratio is still high, banks will consider you at high risk for failing to repay loans. Settle small debts or add income sources to help lower your DSR to a more stable level.
Frequently Asked Questions (FAQ) About Rejected Loan Applications
Can I apply through another bank after application rejection?
Yes, you can, but avoid applying randomly to various banks in a short time. All applications will be recorded in credit reports, and if too many applications are rejected, this can affect your score. It's better to check first why the application was rejected and fix that issue before trying again.
Will loan applications affect my credit score?
Every time you apply for loans or credit cards, it will be recorded in systems like CCRIS. If there are too many applications in a short period, it can negatively affect credit score, especially if those applications aren't approved. Therefore, only apply when you feel confident about your eligibility and documents.
How long will late payment records remain in CCRIS?
Payment records will remain in CCRIS reports for 12 months from the latest report date. If you've been late in paying or have arrears, ensure you start making timely payments for at least 6 to 12 months before reapplying.
If I've settled outstanding debts, can I reapply immediately?
It's better to wait at least 3 to 6 months after you clear all arrears. This gives time for the CCRIS system to update your records and rebuild a healthier credit score. During this time, ensure you have no late payments and all commitments are settled properly.
Any tips to further increase loan approval chances?
To increase your chances of loan approval, ensure you apply for loan amounts suitable to your financial capability and provide all important documents such as pay slips and bank statements. Use the RinggitPlus Recommendation Tool we provide to find loans that match your profile. If unsuccessful, you can consider cooperative loans or secured loans as alternatives.
