Therefore, before you apply for a personal loan Online, you must be aware of the apparent reasons that may lead to the rejection of your personal loan application. This will also help you to act proactively to be prepared in near future.
6 top reasons for personal loan rejection
- Poor Credit Score: Credit score is one of the most important factors that lenders look into while determining your eligibility for a personal loan. Your credit score is a numerical expression of your credit history. Lenders use it as a tool to determine your creditworthiness for future payment based in past credit record. Factors like defaulting on any previous loans, skipping EMIs (not being regular with installments), late credit card bill payments etc., affect your credit score. Therefore, you need to know your credit score before applying for a personal loan and improve it to avoid future rejections.
- Insufficient Income: Lenders look into your net monthly income as one of the key factors to make sure whether you will be able to make repayment against the personal loan you have applied for in the future. If your net monthly income does not meet the income criteria set by the lender, the loan application may be declined. Moreover, the lender gives importance to your job stability. For instance, certain banks require the applicant be employed with the current company for the past 2 years or more.
- Juggling with other debts: If you are running other debts, such as credit card, home loan and car loan, and your existing EMI(s) takes a lot out of your monthly income, then taking another loan will strain your income further. In this situation, you may be considered as a high-risk borrower for a new debt and your application may get rejected. Before applying for a new loan, you should make sure that you have enough income to make another payment.
- Multiple loan applications: Whenever you apply for a personal loan, the bank checks your credit report with credit bureau and the credit bureau mentions this inquiry on your credit report. If you apply with many lenders simultaneously, lenders may doubt your intention and seriousness towards financial responsibility. You should conduct online research and comparison to avoid this kind of situation as soft searches are outside of lender’s knowledge.
- Incomplete or incorrect details: Lenders verify your documents very carefully. You need to provide required documents whenever asked. They double check any inconsistency in the information you have provided, such as your name, residence, phone number, account details etc. If any information in your application is found to be incorrect, it will be difficult to generate the necessary information about you. So, if you have not provided required documents or made mistakes in your application, lenders can reject your application. Make sure you provide required information to the bank with accuracy.
- Previously rejected loan application: In case you had applied for loans in the past and those applications were rejected due to any reason, it reflects badly on your credit score. Due to this, your application may get declined again, unless you have not improved your credit history and score since then.
