03 July 2024 | By INDIE
Applying for a personal loan in India is a fairly simple process, thanks to technology-enhanced lending processes. However, approval may not be guaranteed, and an application may get rejected for different reasons. Understand these reasons to avoid the pitfalls and increase your chances of getting your loan approved.
Some consider personal loans as one of the easiest loans to be granted. However, if you are not careful with all the necessary steps, you may see your application for personal loan getting rejected.
Here’s a look at the six common reasons for personal loan rejection and how to avoid them.
Your credit score is a crucial determinant of your financial health. A low score (below the typical lender requirement of 750) or no credit history can lead to immediate rejection of personal loan application.
Lenders may view a low score as a sign of poor financial management. Regularly check your credit report, correct any inaccuracies, and make timely payments to improve your score.
Apply for several loans over a short period and you may be seen as being credit-hungry. This can adversely affect your credit profile.
Each loan inquiry potentially lowers your credit score. Limit loan applications and only apply when necessary. Consider pre-qualification tools to gauge your chances without impacting your credit score.
Many ongoing loans indicate that a significant portion of your income is already earmarked for other debts, which can reduce the likelihood of additional loan approvals.
A high debt-to-income ratio is a red flag for lenders, as it signals potential default. Pay down current debts and avoid new debts before you apply for a personal loan.
Lenders need assurance that you have a stable and sufficient income to repay the loan.
Low income or unstable earnings can lead to loan denial. Ensure that your income meets the lender's requirements and includes all possible legal income sources in your application to enhance eligibility.
Proper documentation is essential to verify your identity, income, and employment.
Missing or incorrect documents can halt the loan process. Double-check all documents for accuracy and completeness before submission.
Frequent job changes or a short employment history can make lenders hesitant due to the perceived risk of income instability.
Lenders prefer borrowers with stable, predictable earnings. Maintain steady employment for at least a year before you apply for a loan and ensure your employment details are up to date.
Also Read: Different Types of Lines of Credit: Which one suits your needs?
To avoid having your personal loan rejected, here are some additional tips to enhance your personal loan eligibility.
· Strengthen Your Credit Score: Regular monitoring and good financial habits can improve your score.
· Consolidate Debts: Reduce your overall debt burden to become a more attractive candidate to lenders.
· Increase Income Sources: Additional legitimate income streams can bolster your loan application.
· Apply with a Co-applicant: A co-applicant with a strong credit profile can improve your chances.
· Choose the Right Lender: Select lenders whose eligibility criteria match your financial profile.
The application process for a personal loan is straightforward. Ensuring approval requires understanding and addressing the common grounds for rejection. Proper planning and financial management can significantly improve your chances of obtaining a personal loan.
For those in need of flexible borrowing options, Credit Line by INDIE offers a convenient solution. It provides a pre-approved pool of funds that you can draw from as needed, paying interest only on the amount used. This flexibility makes it an excellent alternative to manage cash flow and unforeseen expenses, ensuring you always have credit when you need it most.
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
