Therefore, before you apply for a personal loan online, you must be aware of the reasons that may lead to the rejection of your application. This will also help you act proactively and be prepared shortly.
6 top Reasons for Personal Loan Rejection
- Poor Credit Score: Credit score is one of the most important factors lenders look into while determining your eligibility for a personal loan. Your credit score is a numerical expression of your credit history. Lenders use it to determine your creditworthiness for future payments based on past credit records. Factors like defaulting on previous loans, skipping EMIs (not being regular with installments), late credit card bill payments, etc., affect your credit score. Therefore, you need to know your credit score before applying for a personal loan and improve it to avoid future rejections.
- Insufficient Income: Lenders look into your net monthly income as one of the critical factors to make sure whether you will be able to make repayment against the personal loan you have applied for in the future. The loan application may be declined if your net monthly income does not meet the income criteria the lender sets. Moreover, the lender gives importance to your job stability. For instance, certain banks require the applicant to be employed with the current company for the past 2 years or more.
- Juggling with other debts: If you are running other debts, such as credit card, home loan, and car loans, and your existing EMI(s) take a lot out of your monthly income, then taking another loan will strain your income further. In this situation, you may be considered a high-risk borrower for a new debt, and your application may be rejected. Before applying for a new loan, you should use your income to make another payment.
- Multiple loan applications: Whenever you apply for a personal loan, the bank checks your credit report with the credit bureau, and the credit bureau mentions this inquiry on your credit report. If you apply with many lenders simultaneously, lenders may doubt your intention and seriousness toward financial responsibility. You should conduct online research and comparison to avoid this situation, as soft searches are outside the lender’s knowledge.
- Incomplete or incorrect details: Lenders verify your documents very carefully. You need to provide the required documents whenever asked. They double-check any inconsistency in the information you provide, such as your name, residence, phone number, account details, etc. If any information in your application is incorrect, generating the necessary information about you will be challenging. So, if you have yet to provide the required documents or make mistakes in your application, lenders can accept your application. Make sure you provide the necessary information to the bank with accuracy.
- Previously rejected loan application: If you have applied for loans in the past and those applications were rejected for any reason, it reflects badly on your credit score. Your application may be declined again unless you have improved your credit history and score since then.
