Was your personal loan application rejected? This could be a serious setbackif you were banking on getting the money! Let's try and figure out the top reasons for denial of personal loans by lenders. Thismay help you the next time you try to qualify for a loan.
Before lending any amount financial institutions first verify your credit report and analyse your credit history. The loan could be rejected in case:
• Low score: If you have a low credit score due to any of the reasons such as defaults on prior loans, loans overdue, irregular EMI payment/credit card bills payment etc.
• Adverse comments: Certain errors in your credit report like payments reported incorrectly or closed accounts still showing up as open.
• Poor history: Comments in the credit report like loans being "written off" or "settled", or amounts being paid after the due date can be considered as warning signs.
Thus, it is advised to check your credit report for errors and to initiate a resolution with the credit bureau that's reporting the information prior to applying for a loan.
2. Job Profile
The probability of rejection is higher if you are a temporary employee or on probation. Further, lenders consider the financial stability of your employer and the organisations attrition/churn ratio prior to loan approval. Employees in high churn industry like BPO, IT etc. find it difficult to avail the loan.
3. Insufficient Income
If your debt-to-income ratio is very high, i.e. your income is unable to sustain your monthly repayments then your loan application is likely to get rejected. It is advised to have sufficient and stable income before applying for a personal loan.Lenders always consider stability in employment and 'available income after paying all dues', prior to sanction of personal loan.
4. Your details match with that in the Defaulter's list
Financial institutions maintain lists that contain the name, age, address, and other details of individuals who have defaulted on their payments. If the details you have submitted are (even mistakenly) matched with a defaulter, your loan will be rejected.
5. Standing guarantor on a defaulted loan
If you have been a loan guarantor to someone who defaulted, the bank will consider you as accountable, causing rejection of personal loan application.
All the lenders ask for the purpose of the loan. The purpose should be worthwhile i.e. result in overall savings or helps you gain possession of an appreciating asset that can generate a positive cash flow.
Thus, before applying for a personal loan ensure that you have covered yourself against these rejection reasons.