Are you short on cash and considering taking out a personal loan but are unsure about its approval and concerned that it will be denied? If this is the case, this blog is especially for you. Personal loans are among those that get easily approved, but certain reasons may lead to rejection. In this blog, we share 5 reasons to know about personal loan rejection.
Knowing these 5 reasons, you can minimise the possibility of your personal loan rejection. Keep them in mind and follow the solutions given.
So, here are 5 reasons for personal loan rejection:
1. Credit score is lower than required
When it comes to loans, credit scores are the most important. They are the first thing the banks or other lending institutions check while looking at the loan application.
A credit score is a 3-digit number calculated to summarise the credit history of the person applying for the loan. It is used as an instrument to measure the creditworthiness of the person applying for the loan.
A low or absent credit score increases the chances of personal loan rejection. Normally, a credit score of 700 or above is considered good for loan approval.
You can get your free credit report online.
What can be done? If your credit score is low, take steps to improve it before applying for loans. If you don’t have a credit score, ask your parents or siblings who do have a good credit score to become your guarantors.
2. No stable source of income
If you do not have a steady source of income, obtaining a personal loan may be difficult. When it comes to loan repayment, banks and other financial institutions place a high value on financial stability.
So, if you change jobs frequently or your income is unstable, it becomes very difficult to secure a personal loan. Freelancing gigs or a new business can provide unstable income options. No stable source of income is among the top 5 reasons for personal loan rejection.
What can be done? If you do not have a stable source of income, you can secure a loan from the bank in which you have any kind of account, like a savings account, a fixed deposit, etc. Though there is no guarantee, there are still high chances that you will get a loan against them.
3. Insufficiency of income
Another reason for personal loan rejection, similar to the above, is low or insufficient income for loan approval. Lenders think that you have a high chance of defaulting on the loan payment in the case of low or insufficient income. This makes them wary of approving loans for people with low incomes.
For example, if your income is Rs. 20,000 and your EMI is Rs. 13000, there is a high chance that your loan will not get approved. The reason is that the lender will think that Rs. 7,000 might not be enough for your other expenses, and then you will default on the loan. You can check your loan eligibility through different eligibility calculations available online.
What can be done? If your income is insufficient, you can take a loan against your investments, gold, etc. You can also take loans from NBFCs or other financial institutions.
4. Incomplete information or wrong documentation
When you fill out an application for a personal loan, be very attentive to every little detail. Also, attach the correct and required documents only. Another major reason for personal loan rejection is insufficient information and incorrect documentation in the application.
It is because incomplete or wrong information or documentation makes the identification of the person difficult. Banks or other financial institutions tend not to approve the loan without proper identification of the person asking for the loan.
What can be done? Please first check that your documents are complete and proper. If there is any ambiguity or issue with the documents, correct them before applying for the loan. Also, do not make any mistakes while filling out the application for the loan. Be very careful about spelling and other information.
5. Existing Loans
The last in the list of 5 reasons for personal loan rejection is already existing loans. If you already have several loans under your name or as a guarantor, it is a good reason for banks to reject your personal loan.
Financial institutions have access to all your credit history, even if you take loans from different banks, NBFCs, or other financial institutions. So, it is also not possible to take loans from different institutions.
What can be done? You need to first pay off your existing loans before applying for new ones. If you apply for a loan, you must first check for NBFCs that can give you a loan regardless of your existing loans. Their interest rates are usually higher when compared to the interest rates of banks. You can also check if there is the possibility of getting a loan against investments, gold, etc.
We hope this post helped you understand 5 reasons for personal loan rejections. Knowing these reasons will make it easier to take steps to get your personal loan approved.
Contact us if you need help getting a personal loan or applying for a loan. We at Piramal Finance are always there for any financial help or consultation you need. We have been offering different services for over 40 years and offer housing, business, and personal loans, among others. You can visit our website for more information.