Personal loans are a very popular means of financing any big purchases. In the recent past, the number of borrowers for personal loans has increased at a steady pace. One of the primary reasons why personal loans are extremely popular is the fact that it is an unsecured loan and borrowers are not required to arrange for any type of collateral to obtain the loan. Furthermore, personal loans come with flexible repayment tenures that range from 1 year to 5 years. The repayment schedule is chosen by the borrower based on their ability to repay the amount by taking into consideration their other financial obligations and requirements.
In order to have their personal loan application approved, prospective borrowers need to fulfil the following criteria:
In most cases, loan applications are approved when borrowers meet the above-mentioned criteria. However, there are a few instances where a loan is rejected even when the applicant meets the basic criteria for loan eligibility.
The following is a list of reasons why personal loans sometimes get rejected even when the borrower has a high CIBIL score:
Individuals with an extensive history of taking out loans are often unlikely to have their personal loans approved. This is especially true if the borrower has more than one active loan. Most lenders are sceptical of approving loans for such individuals since the borrower may not be able to make regular payments and will most likely lead to loan defaults. In instances where the applicant has a record of making regular payments towards the loan, the loan could still get rejected since lenders might view the applicant as being credit dependent and possibly a risky candidate for a loan.
Apart from providing the lender with the borrower’s credit score, the CIBIL report also has remarks on repayment history. The report usually contains comments from past lenders with regard to whether or not the previous loans taken were repaid based on the terms stated by the lender. Any negative information pertaining to repayment is highly likely to result in the loan application being rejected.
When reviewing personal loan applications, lenders also focus on the number of debts that the applicant has. Even if an individual earns a high salary, the number of existing debts that they have might dissuade the lender from approving the loan application since the borrower may not have enough disposable income to make the payments for the new loan.
Borrowers can sometimes have their personal loan applications rejected when they had previously been guarantors to a loan that was defaulted. In addition to the default being listed in the borrower’s credit report, it is also added to the credit report of the guarantor.
Another factor that is examined by lenders is the applicant’s income tax payment history. Most lenders prefer sanctioning loans to individuals who make their tax payments regularly and who adhere to the filing deadlines set by the Income Tax Department. Lenders usually review the income tax payment history of the applicant since the information can be verified by a Government agency.
If a loan applicant has made a number of enquires and applied for personal loans from a few lenders at the same time, the loan is likely to get rejected. Most lenders view this as credit hungry behaviour and likely a marker for poor repayment history and dependency on credit.
Since one of the eligibility criteria for personal loans is the applicant’s source of income, having a stable source of income is extremely crucial to the approval process. If lenders observe a trend of frequent job changes, the loan is likely to get rejected since the flow of income is not consistent.
While unsecured loans are a popular and convenient option for most individuals, lenders consider those who only have unsecured loans in their portfolio a potentially risky borrower. Secured loans require the borrower to provide collateral and ensures regular repayment of the loan amount. If the proportion of unsecured loans outweighs the secured loans, most lending agencies tend to reject the loan application.
The CIBIL score is one of many factors that plays a role in the approval of a loan application and applicants should keep in mind the above-mentioned factors when looking to apply for a personal loan.