Seven Probable Reasons for Refusal of Personal Loan
Facing rejection for a personal loan is frustrating, especially if you are in need of cash. When you apply for a loan, the bank judges your credibility to pay off the loan on several counts, including your income, age, job stability, and most importantly credit report, which is a true reflection of your credit worth. Understanding why your application was turned down in the first place can go a long way in helping you qualify for a loan the next time. Here are the seven probable reasons why your loan request was rejected:
#1 Job Instability
One probable reason why the bank rejected your personal loan is because you are an out-and-out, compulsive job hopper. Banks place immense importance on income stability, and urge that an applicant, in order to be eligible, has to be an employee of a specific company for a minimum of four years or more. Additionally, in cases where a company’s future seems unstable, the bank may reserve the right to give a loan to the applicant from the same company.
#2 Faulty Loan Guarantor
If you have ever been loan guarantor to someone who did not pay up, the bank will, in all probability, deny your request for a personal loan. Hence, it’s imperative to exercise utmost caution when signing up to be another person’ loan guarantor. You must ensure the applicant you are supporting has the means to repay the full amount of the bad credit loan without any hassle. Unless you are fully convinced of their credibility, you should not vouch for them because if they refrain from repaying for any reason, you will be held accountable to repay their loan. And if you are unable to pay off the loan on their behalf, you will be reported to the CIBIL and this, in turn, will reflect badly on your credit report.
#3 You Already Have A lot of Debt
One thing that lenders look at while reviewing your loan applications is your particular debt-to-income ratio. In other words, this is the amount of your salary used to pay off your debt installments every month. While a personal loan may be an effective way to consolidate your present debts, or lower your interest rate, you are not likely to qualify for it if you owe excess money already. In fact, a history of unpaid, excess debt is the most common reason for refusal of personal loan. Ideally, anyone who is channelizing 40-50% of their earnings to service their debts, is deemed as an ineligible candidate by personal loan lenders. You will be seen as a high-risk borrower, as the lender will wonder how you will be able to fulfill the new loan obligation.
#4 Your residential address is Same as a Defaulter
If you are living under the same roof as a person who has failed to pay off their credit card dues or loans and has been reported to CIBIL, banks will most likely have the address saved in their defaulters’ database. Thus, even though you are not a defaulter yourself, your address could cause you to increase the probability of a loan application rejection.
#5 Your Credit File is Not Impressive
Bad credit report is one of the most common reason for refusal of personal loan. Building good credit is important to secure a personal loan. To meet this end, you need to be making regular payments on a loan, and/or any other form of debt. If you are currently facing issues with getting a personal loan, and lack the experience of using credit, then instead of trying to get a personal loan, consider applying for a credit card first. There are two types of credit cards: secured and unsecured. Of the two, secured cards are the ones that are directed towards people with poor credit or no credit, as they require you to shell out a certain cash deposit in order to get approved. A secured card can help you build your credit and increase the odds of getting a personal loan sometime down the line.
#6 Your Credit Report Has Errors
Credit reporting errors are surprisingly common, and can prevent you from getting approved for a personal loan. According to a recent study, up to one in every four consumers have at least one mistake in their credit report. Things like incorrect reporting of payments, and aberrant account status can cause you to lose out on personal loans. Inaccuracies entailing delayed payments are specifically dangerous as these cause your credit score to reduce. If you have been denied a loan, consider checking your credit report for errors; in case there is something you see that doesn’t seem right, you should initiate a query with the credit bureau.
#7 Your Loan Application Was Rejected Before
It is not a wise thing to apply for a loan at the slightest pretext. Every time your loan application is refused, it is recorded in the CIBIL report. Hence, it’s important to weigh the pros and cons first before submitting a loan application at multiple banks simultaneously. Wait till you get an offer before applying to the bank. This way, you will get the chance to rectify errors and update the credit record before approaching another lender.
Loan applications are no doubt tricky to navigate, and even minor and seemingly irrelevant pieces of information may be taken into consideration by lenders to decide whether to approve you or not. If you forget to enlist something, like your source of income, or work history, you could sabotage your application unwittingly. Reviewing your loan paperwork thoroughly and following it up with the personal loan lender can prevent a small error from tanking your application.