Personal loans are called unsecured loans because you do not have to provide any collateral or security against the loan. For that reason, lenders review each Personal Loan application with a fine-toothed comb. If even a single factor doesn’t match their eligibility criteria, they deny the application. Banks would not want to risk their money unless they find everything 100% perfect.
So if your application was denied, it’s most likely due to one of these seven common reasons:
1. Your credit score
Have you been paying your EMI and credit card bills on time? If there’s any chance you’ve missed your bill payments, your credit score may be low. A low credit score doesn’t look good on your financial profile. When your history has negative marks, banks know there’s also a chance you’ll default in the future. Thus, the banks get a compelling reason to reject your loan application.
Your personal loan application may be rejected even if you do not have any financial product such as a loan or a credit card. It means you have a poor credit history, making lenders hesitant to sanction your loan.
2. High debts
Your debt-to-income ratio is very important to lenders. If you have too many loans in progress and almost 40-50% of your income is going towards payments, banks may not like to offer you another loan. Too many loans will make them wonder whether or not you will be able to repay them. At some point, your income will become insufficient and you will default. Therefore, it is wiser to finalize one or two loans before applying for another loan.
3. Unstable employment
If you’ve been changing jobs every six months, there’s a good chance your loan application will end up in the rejection pile. Lenders need to know that you have a stable job and that you have a regular income that guarantees repayment of the loan. But if you have been changing jobs frequently, they cannot rely on your stability. Today, most banks have criteria where you must be in the same job for at least one year. Any individual who does not meet this requirement receives a rejection letter for their loan application.
4. Your total income
If what you earn is not enough to pay the EMI, then lenders may decide not to give you a personal loan. You need to check your eligibility criteria properly and get screened before applying. Most banks have a minimum income requirement that you must meet. Your income cannot be less than or equal to your EMI.
5. Incorrect details on the application
Sometimes everything can be fine and your application may still be rejected. The reason could be as simple as incorrect information, a missing document, or a discrepancy with the proof you have submitted. So make sure you don’t make any mistakes while applying. Double-check every piece of information and proof you send to the bank.
You should also check your credit report for errors. You may not be doing anything wrong, but sometimes incidents like identity theft or incorrect entries can lower your credit score.
6. Too many rejections
Did you know that each loan application you make is registered in the credit bureau? So every time your loan application has been turned down, it shows up on your credit record and lowers your score. Applying too many times also reflects poorly on your credit report.
7. Appropriate age and work experience
Many banks have strict rules regarding the age of the loan applicant and the number of years of employment. In general, you must have a total work experience of at least two years before you can apply for a personal loan. Similarly, you must be at least 21 years old to be eligible for the loan. The maximum age is the retirement age from work or 65 years.
summarizing
There is no guarantee that your loan application will be approved. These above mentioned errors are the most common and you should do your best to avoid them. If you plan to apply for a personal loan, keep your credit history clean and provide correct information. Still, it depends on the eligibility criteria of the provider whether you get the loan or not. All you can do is follow these simple required steps.
