Personal loans are the best way to get cash for any large expenses coming your way. Many people get their loan application rejected due to small mistakes they make during their application process. Others get rejected on the basis of poor credit score.
7 easy steps to Avoid Rejection of Personal Loan Application
- Compare and choose the product best suited for your needs and means. If the bank feels you would not be able to pay for the loan you asked for, you’ll not get the loan.
- Check your eligibility for the chosen product. Do not apply for any and every loan that you might not be eligible for. Too many rejections will reflect badly on your credit history.
- Try and find out as much information as you can about the loan you are applying for, the interest rates, processing charges, repayment methods etc.
- Submit all the required documents and cooperate with the verification process. Make sure all the information provided in the application are correct and match with the corresponding documents.
- Do not agree to become a loan guarantor for anyone.
- Make sure your credit score remains good - don’t over borrow, pay your bills on time and in full, don’t miss EMI payments, pay your taxes on time, file for returns, don’t take multiple loans and use your credit cards wisely.
- Check your Credit Report at least 6 months before applying for a loan. If there’s some discrepancy, get it corrected. If the score is not good enough, take measures to make sure that the score gets past 750 for a better chance at loan approval.
9 Common Reasons for Personal Loan Rejection
- Bad Credit (CIBIL) Score
- Incomplete or incorrect information
- Bad investment profile
- Non-verification of temporary address
- Previous bad loan
- Request for change of tenure after approval of application
- Request for increase in loan amount after approval of application
- Signatures mismatch in documents and cheques
- Discrepancy in co-applicant’s information provided and documents
Other Reasons for Personal Loan Rejection
Besides the major reasons, a lot of smaller factors may also contribute to your loan rejection:
- If you settle your loan in any way apart from the terms on which you took the loan or pay after the due date, there will be a remark about it in your CIBIL report which will be taken as a negative mark on your application.
- If you have been a guarantor for a loan that has been defaulted, this will affect your CIBIL score in a negative way.
- Sometimes your details might end up being matched mistakenly with those with a defaulter. For example, you move into an address where a loan defaulter previously lived.
- Your DTI (debt-to-income) ratio is high making you incapable in the bank’s eyes to allocate another portion of your income to pay for your new loan.
- Banks usually prefer applicants who have been actively filing income tax for at least two years. Failure to regularly file for returns will showcase as being irresponsible in managing your finances.
- If you are already paying for too many loans, banks will deem you as credit hungry and reject your application regardless of whether you have made timely payments or not.
- If the ratio of secured loans to unsecured loans is less, the chances of your new loan application being rejected will be higher.
If you are employed in an organization where a number of your co-workers have defaulted on loan payments or have poor credit scores, chances are your application will get rejected as the bank will know that your organization is going through financial turmoil making the employees incapable of honouring their payments.