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Top 9 Reasons for Rejection of your Personal Loan
Being rejected for a Personal Loan can be frustrating, but knowing the reason behind the refusal can help you improve your credentials for re-application in future. Read on to learn about the top 9 reasons for Personal Loan rejection and how you can improve your chances of getting approved for a loan quickly.
When you apply for a Personal Loan, its approval depends on several factors that can influence the lender’s decision. You must meet the eligibility criteria, furnish the required documentation, and maintain good creditworthiness to successfully qualify for a loan.
In case your loan application is rejected, it could be because of any of the following reasons mentioned below:
Before granting a Personal Loan, lending organisations check the income stability of applicants to ensure that they can repay the loan amount without default. Most lenders have minimum income criteria for both salaried and self-employed individuals that must be met before applying for a loan. Hence, if you fail to demonstrate a stable income source, it can lead to loan rejection.
What Can Be Done?
To avoid such situations, you must read the terms and conditions of lenders before applying for a loan. You can also use a loan eligibility calculator to find the right offer according to your requirements and income.
One of the main Personal Loan rejection reasons is not fulfilling the basic application requirements. You must research the application requirements of lenders before applying for a Personal Loan.
What Can Be Done?
You must read the terms and conditions of the Personal Loan of the financial organisation before applying for a loan. Fulfil their eligibility criteria and meet their basic application requirements. However, the application requirements differ from one lender to another.
Every time you apply for a Personal Loan, the lender checks your credit report and credit score through credit bureaus like CIBIL and/or Experian. If there are multiple loan applications within a short period, credit bureaus treat these as hard inquiries and mention them on your credit report. As a result, this can negatively impact your credit score.
What Can Be Done?
You must avoid applying for a Personal Loan from multiple lenders at the same time. You should also research the terms and conditions of the lending organisation so you can make an informed decision.
A credit score is a three-digit number between 300 and 900 that reflects your creditworthiness. It plays an important role in influencing a lender's decision to approve a loan. If your credit score is below the specified threshold of the lender, your loan application will be rejected. Applicants without a credit score may also face rejection due to the absence of a credit history.
What Can Be Done?
Usually, a credit score above 700 is considered a good score to get a Personal Loan at favourable terms and conditions. However, if you do not have a credit history, you must approach a financial lender to check alternative options.
Another major reason for Personal Loan rejection is when you have multiple high-interest debts. If you have multiple credit accounts, it will indicate to the potential lending organisation that you may default the monthly instalments. With your existing debts, you can face rejection if you apply for another loan unless it’s for debt consolidation.
What Can Be Done?
Make sure you only borrow loans and credit cards as per your repayment capacity, as and when required. Avoid taking out more than one loan if you cannot repay them on time. Furthermore, even if you have taken multiple loans, keep a clean repayment record and maintain the ratio of secured and unsecured loans. Ideally, the number of unsecured loans should be less compared to secured loans.
Your profession and employment history play an important role in Personal Loan approval. Most financial organisations prefer to offer loans to individuals working in a reputable organisation. Hence, if you are working in an unregistered or unlisted company, the lenders may reject your application.
In addition, you must also have a stable employment history. Frequent changes in employment can reduce your chances of getting your loan approved by lenders.
What Can Be Done?
Maintain a good employment record to ensure that your Personal Loan application is approved. Usually, financial lenders expect up to two years of work experience with a minimum of one year of experience in the existing company. If you are a self-employed individual, your business existence must be at least three to five years. However, the exact requirements may vary among lenders.
Your loan application is approved only after the verification of your documents. If you submit any incorrect documents or misinformation, the lender can reject your loan application. In addition, you must fill out the application form carefully, entering the required details as accurately as possible. If there are any inconsistencies, the financial institutions will reject your application.
What Can Be Done?
Carefully check the documents before submitting your loan application and carry all necessary documents if you are applying for a Personal Loan offline. In the case of an online application, carefully fill out the form and upload all the necessary documents. Double-check the information before applying so the officials do not reject your application.
A high debt-to-income ratio is another Personal Loan rejection reason. The debt-to-income ratio measures the total income against your existing debts, showing how you can manage additional monthly payments. If you have a high debt-to-income ratio, the financial lenders will think you over-rely on debt and cannot repay the loan amount on time.
What Can Be Done?
Make sure that you pay off your existing debts early and reduce unnecessary expenses. You must also track the debt-to-income ratio regularly to ensure there are no deviations.
Lending organisations will analyse your financial status and determine the maximum credit amount they can grant you. This amount depends on how much you can comfortably repay per month, taking your income and existing debts into consideration. If you borrow too much money than your repayment capacity, the lender will reject your Personal Loan application.
What Can Be Done?
You must apply for a loan amount according to your requirements, keeping how much you can repay per month in mind. Look for Personal Loans that come with favourable terms and conditions and can be availed of for multiple purposes.
Also Read: Decoding Personal Loan Cancellations
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 (700 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.
Here are a few simple and easy steps you can follow to apply for a Personal Loan online:
Step 1: Visit the lender’s website and click on ‘Apply Now’.
Step 2: Enter your details in the application form and upload the important documents.
Step 3: Click the ‘Submit’ button to complete your Personal Loan application procedure.
Here is how you can check your CIBIL score for free from Poonawalla Fincorp:
Step 1: Click on ‘Get Your CIBIL’ and fill out the form by selecting your employment type and specifying your gender.
Step 2: Enter the necessary information, including your name, contact details, etc.
Step 3: Review the terms and conditions.
Step 4: Select the ‘Agree’ option to submit the form.
You will receive your CIBIL score and can download it for further insights.
Also Read: What is Minimum CIBIL Score Required to Get A Personal Loan?
Availing of a Personal Loan enables you to fulfil your financial requirements for nearly any purpose. However, you must take care of some basic factors first to avoid facing any of the Personal Loan rejection reasons mentioned above. You can also take steps to improve your financial situation before reapplying for a Personal Loan.
If the financial institution rejects your Personal Loan, you must find out the reason behind the rejection and rectify it as soon as possible to re-apply.
Having a good CIBIL score of 700 and above enables you to get a Personal Loan from financial organisations at better interest rates and favourable terms.
You can improve your credit score by paying off existing debts on time, avoiding multiple loan applications, and having a healthy credit mix of unsecured and secured loans.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Personal Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply
Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.
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