Banks and NBFC’s (Non-Banking Financial Corporations) provide several types of loans and products to suit different needs. Over the years, the process of applying for a loan has become faster and easier due to advances in technology. As a borrower it is important to do adequate research before applying for a loan. It is even more important that you have your house in order before putting in that application.
Several thousand loan applications are rejected every day. If your recent personal loan application has been rejected, you may want to find out the reasons for the denial. Read on to know more why your personal loan application could be rejected.
- Low Credit Score- A healthy credit score is one of the foremost things banks and lenders look for in a customer. Your credit score is an indication of how you manage your credit. It essentially reflects your credit worthiness. If you have a history of timely payments and maintain a good credit utilization ratio you will have a healthy credit score. Most lenders have a minimum cut off below which they will not approve a loan.
- Incorrect or incomplete loan application- While applying for a personal it is important that the details required are given accurately. The information you provide in your loan application is crucial for the lender to gather details about you. Any misinformation or incomplete information can result in the lender rejecting the application.
- Not meeting income criteria- Lenders will ensure that they lend to the kind of people who have the ability and intention to pay back. They have a thorough and details system for assessing applications that come in an do the necessary credit checks. One of the important factors they assess is the income of the applicant. Having a sufficient and steady income demonstrates the ability to be able to pay back the loan regularly and on time. Based on how much income an applicant has, the eligibility of the loan is decided. If you apply for a loan which is exceeding your eligibility, it will likely get rejected.
- Multiple loan applications- In the quest for a loan you may submit various applications to several banks or NBFC’s. However, you must remember that every time you apply for a loan, your credit score and other details are checked by lenders. This is not a good sign for the lender and gives the impression of a desperate borrower. Filing several loan applications may go against you.
- Unstable employment history- Employment history also plays an important role in the approval or rejection of a personal loan. This can become the most important loan rejection reason. If you have a history of changing jobs frequently and cannot demonstrate steady employment over a period, your personal loan application could be denied.
- Numerous pending loans- This is one of the most significant reasons for a loan being rejected. If you have several loans that are ongoing and consume most of your income apart from your monthly obligations, chances are your loan application will not be approved. To avoid your application from being rejected, it is advisable to keep existing debts to a minimum and set aside atleast 50% of your monthly income.
Irrespective of the reason, it is disheartening if your loan application is rejected. In order to avoid this, it is advisable to fill out your loan application honestly and submit all the necessary documents in time. Before applying for a loan it is important you look at all the factors that may influence your application and ensure they are taken care of.
We hope this blog has helped you understand what is important while applying loan.
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