Personal loans are called unsecured loans because you do not have to provide any collateral or security against the loan. For this reason, lenders follow up every personal loan application with a fine tooth comb. If there is one worker who does not match their eligibility criteria, they reject the application. Banks will not want to risk their money unless they find everything to be 100% perfect.
So if your application is denied, it is likely because of one of these seven common reasons:
1. Your credit score
Did you pay your monthly payments and credit card bills on time? If there is any chance that you fell behind on paying bills, your credit score may be poor. A low credit score does not look good on your financial profile. When your history has negative marks, the banks know there are chances that you will default in the future as well. Thus, the banks get a solid reason to reject your loan application.
Your personal loan application can be refused even if you do not have any financial products such as a loan or credit card. This means that you have a poor credit history which makes lenders hesitant about imposing penalties on your loan.
2. High debt
The debt-to-income ratio matters a lot to lenders. If you have a lot of loans going on and about 40% to 50% of your income goes into repayment, the banks may not want to give you another loan. Lots of loans will make them wonder whether or not you will be able to pay them back. At some point, your income will become insufficient and you will default. Therefore, it is better to finish off one or two loans before applying for another.
3. Precarious employment
If you change jobs every six months, your loan application will most likely end up in the rejection pile. Lenders need to know that you have a stable job and a regular income that will guarantee the repayment of the loan. But if you change jobs frequently, they can’t trust your stability. Nowadays, most banks have standards in which you need to be in the same job for at least one year. Any individuals who do not meet this requirement will receive a rejection letter for their loan application.
4. Your total income
If what you earn is not enough to pay the EMI loans, the lenders may decide not to give you a personal loan. You need to check their eligibility criteria properly and evaluate yourself before applying. Most banks have a minimum income that you must meet. Your income cannot be less than or equal to your EMI.
5. Incorrect details in the application
Sometimes everything can be fine, and your application can still be denied. The reason could be as simple as wrong information, a missing document, or a discrepancy with the evidence you provided. So make sure that while filling out the application, you don’t make any mistake. Double check all the information and all the evidence that 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 false entries can lower your credit score.
6. Rejections are too many
Did you know that every loan application you make is registered with the credit bureau? So every time your loan application gets rejected, it shows up on your credit history and causes your score to go down. Also, applying too many times 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. Mostly you need a minimum of 2 years total work experience before you can apply for a personal loan. Likewise, 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.
Summary of the above
There is no guarantee that your loan application will be approved. These above errors are the most common, and you need to do your best to avoid them. If you are planning to apply for a personal loan, keep your credit history clean and provide the correct information. However, it is up to the eligibility criteria of the seller whether you get the loan or not. All you can do is follow these simple things.