Personal Loans are called unsecured loans because you don’t have to provide any collateral or security against the loan. Because of that reason, the lenders go through every Personal Loan application with a fine tooth comb. If even a single factor does not match their eligibility criteria, they reject the application. The banks would not want to risk their money unless they find everything 100% perfect.
So if your application was rejected, it is most probably because of any one of these seven common reasons:
1. Your Credit Score
Have you been paying your EMIs and credit card bills on time? If there is any chance that you have defaulted on your payment bill payments, your credit score can be poor. Low credit score does not look good on your financial profile. When your track record has negative markings, the banks know that there are chances of you defaulting in future too. Thus, the banks get a strong reason to reject your loan application.
Your Personal Loan application can be turned down even if you don’t own any financial products like a loan or a credit card. It means you have a thin credit history which makes lenders hesitant about sanctioning your loan.
2. High Debts
Your debt to income ratio matters a lot to the lenders. If you have too many loans going on and almost 40% to 50% of your income goes into repayments, then the banks may not like to offer yet another loan to you. Too many loans will make them wonder whether you will be able to pay them back or not. At some point, your income will become insufficient, and you will default. So it is smarter to finish a loan or two before you apply for yet another loan.
3. Unstable Employment
If you have been changing your jobs every six months, then your loan application is most likely to end up in the rejection pile. The lenders need to know that you have a stable job and have a regular income which guarantees the repayment of the loan. But if you have been changing jobs frequently, they cannot trust your stability. Nowadays, most banks have criteria where you need to be in the same job for at least one year. Any individuals who do not meet this requirement get a rejection letter for their loan application.
4. Your Total Income
If what you earn is not enough to pay the EMIs, then the lenders may decide against giving you a Personal Loan. You need to check their eligibility criteria properly and evaluate yourself before applying. Most banks have a minimum income requirement which you have to fulfil. Your income cannot be lesser or equal to your EMI.
5. Incorrect Details in Application
Sometimes everything can be fine, and your application can still be rejected. The reason could be as simple as wrong information, a missing document or a discrepancy with the proof you have submitted. So make sure that while you are filling out the application, you make no mistake. Double-check every information and all the proofs you submit 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 wrong entries can bring down your credit score.
6. Too Many Rejections
Did you know every loan application that you make gets recorded with the credit bureau? So each time your loan application has been rejected, it shows up in your credit record and brings down the score. Applying too many times also reflects badly in your credit report.
7. Right 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 to have a total work experience of at least two years before you can apply for a Personal Loan. Similarly, you have to be at least 21 years old to be eligible for the loan. The maximum age is the retirement age from work or 65 years.
There is no guarantee that your loan application will be approved. These above-given mistakes are the most common ones, and you need to do your best to avoid them. If you are planning on applying for a Personal Loan, then keep your credit history clean and provide correct information. Still, it is up to the vendor’s eligibility criteria whether you get the loan or not. All you can do is follow these simple must-dos.