From Rejection to Approval: Transform Your Personal Loan Journey

Getting a loan rejection is often heartbreaking, but it also motivates you to turn that rejection into a Personal Loan approval. Let’s transform your loan journey from understanding and analysing the reasons for refusal, common reasons for rejection and how you can overcome this by strengthening your loan application. So, let’s get started!

Understanding Why Personal Loan Applications Get Rejected

Every loan rejection comes with a reason, and understanding the reason is the first step you take towards changing the situation. One of the most common factors that can affect your loan rejection is your low credit score.

When you apply for a Personal Loan, the lender checks your creditworthiness and having a low credit score denotes that you are a high-risk borrower. However, it's not always your lower credit score; sometimes it’s also your income that may not meet the lender’s minimum eligibility criteria, or you have an existing debt and more.

Let’s analyse your loan rejection to understand what went wrong and what you can do to fix it in the next section.

Analysing your Loan Rejection

When you receive a loan rejection letter, take some time before you apply somewhere else. Read the letter carefully, as it may include the reason for your application rejection. If the reason given in the letter is your credit score, request a copy of your credit report to check if there are any inaccuracies.

Also, it is important to understand that if you apply for a loan right away, it will trigger a hard inquiry, resulting in a lower credit score.

Common Reasons for Loan Rejection

Here are some reasons for loan rejection:

1. Low Credit Score

Having a good credit score, i.e. 750 and above, opens doors to multiple loan options. But on the other hand, if your credit score is lower than 750, some lenders may not be willing to accept your loan application.

2. High Debt Burden

When the lender evaluates your credit score, they take a look at all your past debts, credit histories and payment behaviour. If you have multiple debts, the lender may reject your loan application, as  handling multiple debts can be difficult.

3. Insufficient Income

The lenders want to ensure repayment before they even disburse your loan amount. They go through your income details to understand your repayment capabilities. Having a stable income demonstrates that you have the capacity to make repayments on time.

4. Incomplete Documents

It’s very important that you submit all the supporting documents correctly, as the loan gets approved only after document verification. When any Personal Loan documents are missing or if the information is found to be inconsistent on the documents, it can lead to loan rejection.

5. Short Employment History

Your job history and current occupation significantly influence the approval of a Personal Loan. Lenders prefer to extend credit if you are employed with recognised and stable organisations. Consequently, if your employer is not registered or listed, your loan application may be declined.

Additionally, most lenders prioritise applicants with a consistent and dependable employment background, making it important to maintain a solid work record. Having at least three years of professional experience is also highly valued in this context.

Rebuild and Strengthen Your Loan Application

Now that you know the ‘why’, it’s time to focus on ‘how’:

• Improve your Credit Score: Work on increasing your credit score by clearing your dues and avoiding defaults.
• Lower your Debt-to-Income Ratio: Lower your debt utilisation to 30%, to assure the lender of your repayment capacity.
• Provide Correct Documents: Organise all the documents in advance, such as KYC, income proof and employment details.
• Consider Co-applicant: For getting loan approval with good terms and conditions, consider getting a co-applicant with a good credit score.
• Build Job Stability: Avoid switching frequently before applying for a loan.

Tips to Increase Chances of Loan Approval

Here are six ways through which you can improve your chances of getting approved for a loan:

1. Maintain a Good Credit Score: A good credit score, usually 750 and above, determines your creditworthiness and assures lenders of your repayment capability.

2. Keep a Low Debt-to-Income Ratio: A low debt-to-income ratio denotes that you can manage your finances well.

3. Do Your Research: Research the terms and conditions of various financial lenders and choose the right lender according to your financial requirements.

4. Fulfil the Loan Eligibility Criteria: Ensure you meet the basic application requirements and eligibility criteria of the lender before applying for a loan.

5. Check Your Loan EMIs: You can calculate your loan EMIs through a Personal Loan EMI calculator and plan your debt repayments accordingly.

6. Avoid Multiple Loan Applications: Avoid applying for a loan from multiple lenders at the same time, as it can negatively impact your credit score and lead to loan rejection.

To Conclude

Your loan journey does not end at the loan rejection; it also begins there. So, by being aware of your mistakes on the previous loan application, understanding and analysing them can help you understand where you went wrong. With the right approach and tips to increase your chances of approval, you can transform your loan rejection into loan approval.

Frequently Asked Questions

Why was my Personal Loan application rejected?
Your loan may be rejected due to factors like a low credit score, high debt burden, insufficient income, incomplete documentation, or unstable employment history.

Can insufficient income lead to loan rejection?
Yes, lenders assess your income to ensure you can repay the loan. If your income doesn’t meet their minimum criteria, your application may be declined.

What is the minimum credit score required for a personal loan?
Most lenders prefer a score of 750 or above for personal loan approval.

What documents are required for a personal loan?
Typically, KYC documents, income proof, employment details, and bank statements are needed.

How long should I wait before reapplying for a personal loan?
Wait at least 3-6 months, improve your credit profile, and ensure eligibility before reapplying.