Personal Loan: How to Avoid Rejection

Jul 2018 | Team Rubique

A personal loan is acquired to meet certain immediate money requirements. This loan type is unsecured as it does not involve keeping a property collateral and the bank will only keep signed cheques by the borrower.

Personal loan interest rates are usually high when compared to other loans such as a home loan. There are two necessary conditions that almost all financial institutions have for clearing a personal loan. First, it is available to only salaried individuals; and second, good financial terms with the bank.

It is not hard to receive the best personal loan offers as banks promote personal loans more. Obviously, these financial institutions get to park their money for short duration but with a high-interest rate. Even if you get a low-interest personal loan, this interest will still be higher than other loans.

Nevertheless, sometimes there is an urgent need of acquiring a personal loan, and at that time, you should try to get it approved in the first chance. This is necessary because once your application is rejected, it is reflected in your history. Other financial institutions will then hesitate before approving your loan.

Some reasons due to which personal loan application gets rejected are low or bad CIBIL score, too much-acquired debt, other unsecured loans, issues with the documents, mistakes in the loan application, and not matching eligibility criteria.

Common Reasons Why Personal Loan Is Rejected

It is generally perceived that personal loan application is rejected due to CIBIL (credit) score. However, there are many other reasons due to which your personal loan application may be rejected.

1. Bad CIBIL Score

If previously you have defaulted while paying back some amount to any financial institution, then your application will be rejected. Financial institutions will run a hard inquiry on your credit score to know how capable you are to repay the credit. If this history is bad, there are very low chances of acquiring the loan.

Additionally, if you have never taken a loan or acquired a credit card, you will have no credit history. When you have no CIBIL or credit score, it will be hard for the lender to assess your repaying capabilities, which can also lead to rejection.

2. Incorrect Documents

Data is the most important part of your personal loan application. When this data is incorrect, incomplete, or insufficient, even worthy applications are rejected. Financial institutions first review your documents to move to the next step. If this information is partial such as wrong account number, contact details, etc., then your application can be rejected.

3. Piled Up Debt

Financial institutions and banks always check your loan-to-income ratio, which means the amount you’re taking home after the debt every month. If your debt, including previous loans and credit cards, is too much, your application can be rejected. To fix this, you can give up extra, unused credit cards and clear loans with small amounts pending.

4. Lack of Steady Income

Most financial institutions prefer providing a loan to a person who has a stable job and a stable job history. If you are on a job-hopping mission or just changed your job, applying for a loan may not be the best idea as your rejection chances are high.

5. Not Matching Eligibility Criteria

Other than all these factors, every bank has some personal loan eligibility criteria. If you are not matching this criterion, then your application will be rejected. So, check the eligibility of your particular bank to avoid application rejection.

For instance, some banks mandate that your nationality should be Indian, your age should be minimum 21 years, and your minimum income should be INR 20,000 to 25,000 per month.

6. Multiple Applications

If you have applied multiple times for personal loan or credit in a short duration, then you may be perceived as a credit hungry person. Banks may doubt your capabilities of repaying the loan, looking at your desire of acquiring credit so eagerly.

Things to Consider To Avoid Personal Loan Rejection

In case your personal loan application is rejected, then it does more harm than the rejection of other loans. Think about it, a personal loan is a low-value loan. When this low-value loan application is rejected, it reflects more negatively than the rejection of a high-value loan like the home loan.

Now, this makes it necessary to take all the precautions to avoid personal loan rejection.

1. Amount of the Loan

If your loan amount is too low (let’s say INR 24,000), then you should first try to acquire it from personal sources only. As it is believed that personal loan amount below INR 25,000 definitely leads to application rejection. Why does this happen? A loan amount that is too low depicts that you are under too much financial distress and had to apply for a loan to acquire this small amount. The bank will hesitate, as they will doubt your capabilities of paying back this loan.

2. Salary Threshold

You should first check the bank’s or financial institution’s salary threshold for applying for a personal loan. If your salary is less than the threshold set by the financial institution, you should not apply for the personal loan. There is a slim chance of that loan getting through.

Other than this, it is already clear that personal loan is only for salaried individuals and, in particular, people who have a salary account with this institution. If you are on probation or a temporary employee, there are high chances of your loan application getting rejected.

3. Reason for Applying

Although people apply for a personal loan due to various reasons, you still need to specify the reason to the bank. Now, if your salary is handsome, the reason won’t matter that much and there are chances of your application getting through. But, if your salary is low, then you need a legit immediate reason to acquire this loan. This is because your application will be scrutinized thoroughly to check if you can repay the amount.

For example, it is unwise to apply for a loan to go on an international vacation. You can avoid this cost and it is not an emergency. There are high chances of bank rejecting an application for acquiring this loan.

4. Previous Unsecured Loans

If you have already acquired some unsecured loans previously, then chances of getting a personal loan are very low. Also, if you pay EMIs, which amount to 50% or more of your salary, then your chances are almost negligible. Hence, evaluate your financial situation first and then apply.

Personal Loan: Verify Your Details before Applying

You can get the best personal loans, acquire considerably low-interest rates, and even apply for a personal loan online. However, for that to happen, the first requirement is that your application should be accurate. Hence, re-verify every detail given above to ensure that your personal loan application is cleared.