An unsecured form of credit offered without any collateral, personal loans are an efficient way to glide over financially difficult times. Whether it is a medical emergency, dream family vacation, dreams of pursuing higher education, or an unavoidable home renovation, one can easily apply for a personal loan to arrange the required funds at an affordable rate of interest. However, make sure to carry out a detailed inquiry about the eligibility criteria and compare interest rates of various financial institutions before applying for a personal loan online.
While the loan acceptance largely depends on the candidate’s eligibility and requirements, one should also look out for bonus features offered by the lender such as the quick disbursal scheme provided by financial institutions. Although most loan applications get accepted within minutes of submission, some candidates might face rejection despite having a good CIBIL score due to a number of reasons such as incomplete documents submission, inadequate income, or high loan amount. Read on to know in detail about the reasons that could lead to personal loan rejection.
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3 Possible Reasons For Personal Loan Rejection
1. Low credit score
One of the major reasons for the rejection of your personal loan application could be a poor or thin credit history. A credit score demonstrates your ability to manage money and handle debts based on your payment history involving credit card bills and previous loans. The higher the credit scores, the better will be the chances of your loan getting approved. While a credit score can range from 300 to 900, the financial institutions hesitate to pass the loan application of a candidate having a CIBIL score less than 750. Hence, one must check the score beforehand and improve it to avoid any rejections at a later stage.
To achieve a good CIBIL score, one must be active in paying outstanding credit card debts in full within the due date. If possible, set up automatic bill payment reminders to avoid late payment which also costs an annual percentage rate (APR). Additionally, one must keep a check on credit card expenses irrespective of the limit to maintain a healthy credit utilization ratio (CUR). Also, if the EMIs of any previously acquired loan is pending, do make sure to deposit them on time for a positive impact on the credit score.
2. Insufficient Income
Another key reason for the rejection of a loan application is the inadequate salary of the candidate. While the eligibility criteria for a personal loan clearly states the required income for a salaried professional or a self-employed individual, the financial institution could find a lack of steady source of income of the borrower upon doing a background check. A key factor that could cause this scenario is the candidate’s constant job-hopping nature or inability to stay at an organization for a significant period.
The nature of employment and work experience of the candidate are key factors to satisfy the lender that the loan amount shall be fully repaid along with the interest within the tenure. Therefore, in case you do not earn an adequate salary, you need other sources of income such as rental receipts or investments to get the loan approved.
However, lenders could also reject your loan despite having a high income in case you have a high Fixed Obligations to Income Ratio (FOIR). FOIR accounts for all the fixed monthly expenditures you are supposed to take care of, including property rent, credit card bills, existing loan EMIs, etc. Therefore, perform a double check on your monthly income before applying for a loan to avoid such situations.
3. Incomplete Paperwork
Last but not the least, incorrect details or inaccurate information mentioned in the loan application form could also lead to rejection by the concerned department. Any discrepancies found regarding your name, eligibility, work details, account details, credit reports, etc., or with any of the proofs you have submitted along with the application could become the cause of rejection as well as unnecessary scrutiny. Upon filling in all the relevant details, take a moment to proofread all of them in the preview section before final submission to avoid any disapproval.
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As long as you assess the credit score and income before applying and avoid needless mistakes while filing the form, your personal loan shall be approved without any hassle.