Looking to take out a Personal Loan? Make sure you go through this list of 6 major reasons why your Personal Loan application may get rejected.
There are many reasons why people apply for a Personal Loan. Sometimes, we don’t have enough cash on hand for a certain work. At that time a Personal Loan seems to be the perfect solution to all our financial needs.
Even if you have a Credit Card, opting for a Personal Loan often turns out be a better alternative, especially when you’re planning to invest in something huge. Some other reasons to prefer Personal Loans over Credit Cards include their lower rates of interest and more time to repay as compared to the latter.
Personal Loans can ease out your finances in a number of ways. Hence, it’s important that you plan your application well to avoid facing a rejection. This will affect your budget significantly. Here are 6 major reasons your Personal Loan application might get rejected:
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Poor track record
Your application has a high chance of getting rejected if you have availed too much credit previously. If you have also missed a couple of instalments then chances of rejection increase by ten folds. Unpaid electricity or telephone bills can also add up and further affect your track record.
Before signing up as a guarantor for someone, it’s quite essential for you to check and ensure that they’re capable of paying off their loans. In case they fail to do so, the bank will hold you accountable. This further affects your credibility and track record.
Additional Reading: 4 ‘I’s of Personal Loan Rejection
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Unstable income
Before sanctioning a loan, banks usually monitor your work history. If they see you as a frequent job-hopper, the chances of giving your loan a green signal further reduce. Since the banks need to ensure that you have a constant source of income that’s sufficient to pay the monthly instalments, they will look into your current job status. If you’re working somewhere on a temporary basis or are still on probation, you might not get an approval.
Additional Reading: Common Mistakes To Avoid When Applying For A Personal Loan
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Too many loans
If you already have a couple of loans to pay, banks might not consider you to be fit for another loan. They usually look into the Debt to Income ratio (DBI), which measures how much of your monthly income you use to pay EMIs. If they find you overleveraged already, the chances of getting a loan approval slim down further.
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Wrong/invalid details
While completing the paperwork for your loan, it’s essential to ensure that you fill in all the details correctly. Since the bank needs to verify all these details before processing your loan request, any small error is a good enough reason for the bank to decline your loan. It, therefore, becomes necessary to review your paperwork thoroughly before submitting it.
Additional Reading: Personal Loan Document Checklist
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Defaulter residential address
If someone who shares your residential address has a track record of missing EMIs and has hence been reported to CIBIL, your address automatically gets stored in their defaulters’ database. As a result, when you apply for a loan, they link the bad record to you and you automatically become a part of their defaulters’ list as well. This reduces your chances of getting a loan approval.
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Previous loan rejections
Rejected loan application in the past can lower your chances of getting a loan in the future. Before switching banks and applying elsewhere, it’s advisable to talk to the bank where you’d applied initially and understand why your loan got rejected in the first place. This way, you get to raise your credit score before applying elsewhere. As a result, your chances of getting a loan approval increase.
Additional Reading: All You Need To Know About Personal Loan Eligibility Calculator
Now that you know all about why Personal Loan applications may get rejected, make sure you keep these reasons in mind before applying for one.
If you’re looking for a slew of amazing financial products like Credit Cards or Home Loans, then you’ve come to the right place.