Sometimes in life, we need financial assistance, and in these circumstances, personal loans are one of the best solutions. Personal loans which are s
Sometimes in life, we need financial assistance, and in these circumstances, personal loans are one of the best solutions. Personal loans which are short term, instant loans with easy and flexible repayment solutions are one of the best forms of financial instruments in the market, thanks to their wide availability and overall acceptance of customers.
Almost every major bank starting from HDFC and ICICI to SBI and Yes Bank give out personal loans of various amounts. And not only this, there are several applications in the market like Money View and Bajaj Finserv which specialize in instant quick loans and give out any amount between ₹10,000 to ₹500,000 within 24 hours.
But in various situations, your personal loan application may get rejected, and this might happen due to a variety of reasons, and in this article, we will talk about exactly that.
In today’s article, we will share with you 6 reasons as to why your personal loan application might have been rejected, and also ways to overcome them. Let’s get started.
- Low Credit Score
- Low Income
- Incorrect Details
- Job Instability
- Previous Unpaid Loans
- Other Unstated Reasons
Low Credit Score
One of the first and most important factors that any financial institution or NBFC (Non-Banking Financial Corporation) checks upon receiving your personal loan application is your credit score. For example, Money View, which is one of the leading personal loan lenders in the market, has criteria for the applicant to have a minimum of 650 on the CIBIL scale and 750 on the Experian scale.
No matter how well-thought-out and designed these applications might be, and how many factors they consider, one of the first aspects they consider is your credit score.
The reason as to why they check your credit score is the fact that it is an almost accurate representation of your financial discipline and situation. If you don’t know what credit score is, you can understand it as a score that represents your overall lending habits and how you have maintained them.
Your credit score takes into account four main factors: your previous loans, the amount of credit you have, your repayment history, and your missed or late payments if any.
In India, there are two main organizations that keep track of your credit score, and they are CIBIL and Experian. Both private organizations by nature, the scores from these agencies are taken into account whenever you apply for a personal loan.
The second reason as to why your personal loan application might get rejected is that you have a low income. When you apply for a personal loan from any lender, you are categorized into either of three categories, salaried with fixed income, self-employed, and student. Based on which category you fall into, your income will be assessed, and it will be analyzed by the lender to decide if they should render your loan.
If you are a salaried employee with a fixed income, then it becomes easiest for the lender to assess your financial health and your loan application. The reason behind this being, since you have a fixed income, the lender can use that as a yardstick and count on it to pay back your loan.
On the other hand, if you are a student or self-employed, the lender needs to consider many other factors to assess if they should render you a loan or not.
While there is no set rule, generally for salaried employees, you need to have an income of minimum ₹25,000 per month, and for self-employed you need to have a minimum income of ₹35,000 and above.
If you fall below these criteria, there is a chance that your loan application might get rejected.
Leading lenders these days have completely online and paperless application processes wherein you need to fill out all the necessary details either on the lender’s website or mobile application.
The details you will require to submit are as follows:
- Your full name
- Your address (both residential and permanent)
- Aadhar Card Number
- PAN Card Number
- Registered Phone Number, and
- Email address
Suppose either of these details is inaccurate or wrong then chances are that your loan application will be rejected. Thus you need to make sure that you are entering the correct details when you are submitting your loan application as often these applications won’t let you change your details once you have entered them.
Another reason lenders consider while reviewing your loan application is your job stability. If you are a salaried employee, but you change your job too often, then it might become a reason for your loan rejection. The reason behind this being, the lender will take into consideration your salary as a yardstick to guarantee that you will pay back your loan on time; but if you keep on changing your job and thus have no consistent salary, then it becomes difficult for the lender to establish if you will pay back the loan or create a default.
Previous Unpaid Loans
Whenever you apply for a personal loan, the bank or NBFC you apply with will check your past loan history. They will mainly get it done through your credit score, but may sometimes refer to other means as well to check for your information.
If you have too many previous loans that are unpaid or are due for completion long into the future, then your chances of getting approval on your personal loan decreases. When you have previous loans, your bank basically interprets the situation as, if you are already paying the EMI for an existing loan, how will you be able to pay the EMI for another loan as it will essentially become a burden for you. For this reason, your loan application might get rejected, and thus it is always advised that you take loans when you need them and maintain a good balance on them.
Other Unstated Reasons
We have covered some of the major reasons as to why your personal loan application might get rejected, however sometimes there may be other factors such as nationality, age, educational qualification, etc. which will be taken into consideration when banks and NBFCs are reviewing your loan application. In such scenarios, if you do not meet the criteria, your application might get rejected.
The chances of your loan application being rejected lies on a 50-50 balance, which means that there is an equal chance for approval or rejection. However, if you follow through on all the criteria mentioned above and make sure that you meet them before applying for a personal loan, your chances of getting rejected will be drastically reduced.
We wish you all the best on your lending and credit journey and hope that you get approved for the loan you need.