8 Common Reasons for Personal Loan Rejection

Before applying for a loan, it is always advisable to know the possible reasons why it could get rejected. Below are 8 reasons that you should consider eliminating to maximise the chances of loan approval.

1) Poor Credit Score  

One of the biggest reasons for rejection of loan application is a poor credit score.  Delayed payments and high credit utilization are key reasons which can impact your credit score, thereby decreasing the chances of lenders approving your loan application.  

2) Unstable Monthly Income 

Monthly income is one of the key determiners of the status of any loan application. 

 If you have an unstable monthly income, chances are the lender would assess if you’ll be able to repay your EMIs on time. 

3) Submitting Too Many Loan-Applications 

Since the lender views your entire credit history, they get the information about all your loan applications. 

Submitting multiple loan applications gives a notion that you’re either being consistently rejected, or you are trying to get personal loans at the same time from multiple lenders.

4) Having Too Many Ongoing Debts 

Ongoing debts are a sign for the lender that you are already over leveraged, hence they increase the chances of rejection of your application. 

5) Failure To Meet The Eligibility Criteria 

Different lending companies have different kinds of eligibility. Lenders require the applicant to have a minimum monthly income of Rs 20,000 or certain credit scores and so on. Your loan application might be rejected simply because you don’t fit the exact eligibility criteria.  To avoid such situations, you should always research before applying for a loan. 

 6) Mistakes In The Credit Report 

If your credit bureau has made a mistake in your report, your future loan applications could be rejected due to that. It is best to look out for even minute details in your report and look for errors which may include incorrect loans reported. Upon the discovery of the error, contact your bureau and get it rectified. 

 7) High Credit Utilization

High credit utilization refers to using a large percentage of your available credit limit. High utilization of credit may negatively impact your credit scores.  If you have a very high credit utilization across all your borrowed money, there is a high possibility that your application will get rejected. 

8) Geographical Ineligibility  

Many instant loan companies categorize some geographical regions under non serviceable areas or in a negative zone. If your loan application gets rejected and you don’t see any issue with your past credit behavior, you may check with the lender to see if this could be an issue. 

How To Increase Your Chances Of Getting Approved For A Loan?

You can increase your chances of getting approved for a loan by following the below:

Increase Your Credit Score:

Your credit score is so much more than a 3-digit number. It’s a golden ticket to high value loans with the best terms of borrowing. When you increase your credit score, it automatically increases your loan eligibility. This is because lenders will see you as a low risk borrower who can be trusted with credit.

Improve Your DTI:

DTI or Debt-to-Income ratio is a numeric value that determines how much portion of your monthly income goes into debt. Lenders check this ratio to evaluate if you have the capacity to repay your loans or not. Improving your DTI by closing any ongoing debt can help you increase your chances of getting approved for a loan.

Borrow A Loan Amount That Fits Your Budget:

It’s extremely important to evaluate your financial situation, requirement and eligibility before you even start your loan application process. This will give you a clearer understanding of how much money you want to borrow, helping you choose the right lenders. And choosing the right lenders will automatically increase your chances of getting approved.

Take A Loan With A Cosigner:

If you have a family member with a strong credit profile and stable income, you can ask them to be a cosigner of your loan. This way, you can increase your chances of getting approved for a loan with an affordable interest rate.

Additional Tips:

You could always contact Customer Support to understand why your application got rejected. This could help you find out the exact reason in case you are not able to find out by yourself.

Also Read: The Dos and Don’ts of Personal Finance Planning

Conclusion

Personal loan rejections can happen due to many factors. You can always reapply for your loan and try again but before you do that it is important to be aware of the possible reasons. Work on it as soon as possible once you find out the reason.