5 Reasons Why Your Bank Loan Application Might Be Rejected in Kenya

Kenyan banks are usually strict when it comes to lending money. That means many people miss out on the opportunity to access credit for their personal or business needs. If you are planning to borrow a loan in Kenya, you need to be aware of the common reasons why your loan application might be rejected. Some of these reasons are related to your personal and financial situation, while others are related to the bank’s policies and regulations. 

Here are the five most common reasons why a Kenyan bank might reject your loan application and how you can improve your chances of getting approved:

1. Poor credit history

One of the first things that Kenyan banks check when you apply for a loan is your credit history. Your credit history is a record of how you have borrowed and repaid money in the past. It shows whether you have paid your bills on time, defaulted on any loans, or been declared bankrupt.

Your credit history impacts your credit score, a numerical measure of your creditworthiness. Your credit score is one of the most important factors that Kenyan banks consider when evaluating your loan application. If you have a high credit score, you are a low-risk borrower who is most likely to pay your loans on time and in full. On the other hand, a poor credit score suggests you are more likely to miss payment dates or default.

2. High debt-to-income ratio

Another key factor considered by Kenyan banks when assessing your loan application is your debt-to-income ratio (DTI). DTI represents the percentage of your monthly income dedicated to servicing your debts. For example, if you earn Ksh 50,000 per month and spend Ksh 20,000 on debt repayments, your DTI is 40%.

A lower DTI demonstrates your ability to comfortably repay a loan while meeting your other financial commitments, while a higher DTI could raise concerns about your capacity to manage additional debt. Therefore, if you have a low DTI, you are more likely to secure a loan than someone who has a high DTI.

3. Insufficient or inappropriate collateral

If you are applying for a large or long-term loan, especially for business or personal purposes, chances are that you will need to provide sufficient collateral to the bank. If your collateral is insufficient or inappropriate, then your loan application might not be approved. 

Collateral is an asset or item that you pledge to the bank as security for the loan or guarantee of repayment. It can be anything of value, such as land, house, vehicle, equipment, stock, or savings. In the event of a loan default, the bank can seize and liquidate the collateral to recover its funds. 

4. Low or unstable income

Another reason why you might not be able to secure a bank loan in Kenya is if your income is low or unstable. Your income is money you earn from your job, business, or other sources. A stable income means you have a steady source of income that is unlikely to change or stop in the near future.

Your income usually determines how much you can borrow and how you will repay. There is a high possibility of getting your loan application approved if your income is high. Also, you will likely have a low chance of your loan application going through if your income is unstable or fluctuates.

5. Incomplete or incorrect documentation

Last but not least, a Kenyan bank is likely to reject your loan application if you provide incomplete or incorrect documentation. Documentation is the collection of documents that you need to submit to the bank along with your loan application. It includes your personal details, financial statements, tax returns, bank statements, payslips, business registration certificates, and any other relevant information.

Documentation is essential for verifying your identity, income, assets, liabilities, and credit history. It helps the bank evaluate your eligibility and suitability for the loan. Without proper documentation, your loan application may be rejected or delayed.

Tips to Boost Your Chances of Getting Your Loan Application Approved

Getting your loan application approved in Kenya can be challenging, but not impossible. You need to understand and avoid the common reasons why they are rejected to increase your chances of getting the money you need.

Here are some tips to remember when applying for a loan in Kenya:

• Before applying for a loan, try to review and improve your credit score.
• Pay off some of your debts and increase your income to lower your debt-to-income ratio.
• Choose the right type and value of collateral for your loan, and ensure it is clear and insured.
• Increase your income and savings by seeking additional sources of income and saving regularly.
• Fill out your loan application form correctly and attach all the required documents.

If you follow these tips, you will be well on your way to getting your loan application approved by a Kenyan bank.