Project Description
Why Do Banks Reject Your Loan Application?
The most common reasons for being rejected are:
- Bad credit history
A bad credit history generally means you often get penalised by a bank because you fail to pay your monthly instalments on time. For instance, you often forget to pay your credit card bills on time, even the minimum payment, resulting in late charges.
- Erratic or low income
Not everyone works full-time. Freelancers, part-timers or even self-employed business owners have a higher chance of being rejected as they generally have an unstable income. It doesn’t even matter if their freelance or part time income is actually tens or hundreds of thousands ringgit, as the banks perceive the income as an inconsistent one that occurs only ‘once in a blue moon’. However, keep in mind that some banks may also reject your loan application if you earn a monthly fixed income that consists of a low basic salary and a high commission – another source of earning that is not consistent each month.
- Too many loans
A fixed higher-than-average salary and a healthy credit history do not necessarily grant you instant loan approval. Don’t forget that your commitments play a role in the determination of your DSR too. Again, the general rules of thumb apply that you should not exceed 60%-70% of your salary, as according to most banks’ accepted level of DSR.
- Blacklisting
Your loan application is most likely to be rejected if you are blacklisted in CCRIS, CTOS or PTPTN due to a poor personal repayment record. This also applies if you have been declared bankrupt either by a relevant individual, bank or an organisation.
- Cash salary payments
You earn enough, you pay your loans on time and your salary is even paid directly to you in cash. What can go wrong? That is exactly what the problem is – banks do not prefer to grant loans to people who receive cash salaries or those with handwritten salary slips. Why? The banks are not concerned about your lack of income but rather, they don’t have any indication of your financial health or a credit history to refer to, hence they would rather ‘play safe’ and not give you a loan. Those who do not contribute to EPF/KWSP may find it difficult to secure a loan too; banks perceive these employees as part-timers and freelancers.
A tip for freelancers: Banks like to see proof of regular incomes, so what you can do is to set up a sole proprietor company and open a bank account under your new company name. Bank in all payments received, be it cash or cheque. Then, pay yourself a fixed monthly salary complete with EPF deductions. Don’t forget to ‘issue’ yourself payslips that you can use to support your loan application later.
What’s next?
Once you are ready for the next step of getting a loan, prepare the relevant documents. Every bank would require:
- a copy of your identification card
- the latest 3 or 6 months salary slip
- the latest 3 to 6 months bank statement (as proof of salary credited as per pay slip)
- sales & purchase agreement (S&P)
- property booking receipt
- latest EA form
- latest KWSP statement
Documents required for Self-Employed
If you are self-employed, there may be other required documents pertaining to your business that you would need to submit, in addition to the above. The list varies between banks, but these are the usual requirements:
| Sdn Bhd Company | Sole Proprietor and Partnership |
|---|---|
|
|
Therefore, knowing what the bank looks for, and understanding why banks reject your loan application is always the first step towards getting your loan approved. Now that you know the bank’s requirements, the next step is always understanding the features of the bank loan, to assist you to choose the right housing loan. Last but not least, once you are confident of being able to get your housing loan approve, then it is time for you to consider buying your dream property for own stay as well as for investments.
