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Consumer Affairs
Thursday, March 12, 2015 - 02:16
Checking up

Many consumers who have had their application for a loan declined, whether it is a short-term or long-term loan, may wonder what the reasons are and how they could improve their chances of being approved.

According to Craig Whittaker, Head of Product at Wonga.com South Africa, it is important for consumers to educate themselves about the possible reasons why their loan applications may have been unsuccessful and what steps they can take to improve their next loan application.
He says that responsible lenders comply with very stringent affordability guidelines when assessing a consumer’s credit application in order to ensure that they are able to repay the loan.
He provides the following possible reasons why credit or a loan application may be declined.

Information on a credit report

Credit providers will always check an applicant’s credit history before they take a decision to grant the loan. If the applicant has a bad credit history, particularly with issues around repaying debt, this information will be reflected on the credit report and the credit provider might choose to decline a loan on this basis.
According to Whittaker credit providers will look at information such as: previous loan applications over a certain period, current loans, overdue accounts and current and previous employers. “Some lenders could even refuse a loan application in the event of defaults on cell phone accounts.”
It is important for consumers to check constantly whether their credit report reflects their credit behaviour in a positive way. Consumers are able to access one free credit report a year from the credit bureaus. The better the credit score, the better the chances of having a loan application approved.
Consumers are advised not keep on applying for loans, especially if they know there’s a good chance they will be rejected. Credit providers will be able to see all the previous applications a consumer has made. In addition, consumers should not make simultaneous applications to each bank, as this will not reflect well on their credit record. Consumers should rather wait to hear back from the bank, before applying with the next bank for a loan.

ID theft/fraud

If a consumers’ ID number is flagged as having been compromised in the past (e.g. being a victim of ID theft), they might be declined a loan. In addition, if a consumer’s ID has been stolen and used to rack up large amounts of debt and these debts have not been repaid, this could also result in their application being declined. 
Whittaker says that it is imperative that consumers protect their personal details from anyone who could potentially use this information for fraudulent activity.
Many credit providers have their own scorecards, which measure the affordability level of the consumer applying for credit. The creditor provider will consider various pieces of information including that from the credit bureau, but will have their own scorecards and selection criteria. For example, Wonga only approves 25% of first time loan applications and constantly updates its risk engine, so that the data it considers is as up to date as possible.

National Credit Act regulations

The National Credit Act has set out very clear regulations that govern the way in which credit providers grant loan applications. According to these regulations, credit providers cannot grant a consumer a loan if they have applied for debt review or have been declared insolvent.
Credit providers have methods in place to determine whether the applicant will be able to repay their loan, or not. As part of the assessment process, credit providers will consider the applicant’s income and living expenses in order to estimate the repayments the applicant will be able to afford.
“If the applicant does not meet the minimum income criteria for the loan amount that they are applying for their application will be rejected,” points out Whittaker. “If most of the consumer’s income goes into repaying multiple debts, the consumer will not have the ability to pay off any future loans, or unexpected expenses.”
In other words if the repayment amount on the loan being applied for is greater than the consumer will be able to afford – the credit provider is unlikely to grant the loan.
“It is vital that consumers ensure that they do not over-extend themselves with their debt commitments. Ensuring that you have enough money to honour all debt commitments, as well as have enough money to pay for any unexpected expenses, is crucial for anyone considering applying for a loan.”

Copyright © Insurance Times and Investments® Vol:28.3 1st March, 2015
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