Reasons for Loan Rejection Despite Good CIBIL score

A borrower’s good CIBIL Score is synonymous with good credit and loan history. However, there have been cases when even after a good CIBIL score, the borrower has faced loan rejection from banks and other lenders. You may be wondering why. Find out below:

Reasons for Loan Rejection Despite High CIBIL Score

1. Frequent borrowings

Banks and Non-Banking Financial Companies (NBFCs) are hesitant to grant loans to borrowers who have one too many loans under their name. The lenders are worried that granting a loan to such an applicant will increase the borrower’s credit debt and may lead to defaults. Frequent borrowing also affects your CIBIL Credit Information Report and CIBIL Score. Even if you have repaid/repaid your loans in line with your schedule, the lender is inclined to think that due to the borrower’s credit dependence, he/she is a risky candidate for a loan. In such a case then, the lenders conclude that you are overleveraged and an additional loan will overburden you financially. This conclusion causes the lender to turn down the loan request of such an applicant.

2. Guarantor to an already Defaulted Loan

If a loan defaults, it impacts the borrower’s and the guarantor’s credit history. If you are party to a loan that has defaulted, even if you just are a guarantor, it affects your CIBIL Credit Report. And when you apply for a loan, your guarantee on the defaulted loan can end up as a reason for the lender to deny your loan. This is why it is highly recommended that you should ensure the repayment capability of the borrower before becoming a guarantor for his/her loan.

3. Comments in Your CIBIL Report

Apart from low CIBIL, one of the most overlooked reasons behind loan rejection is ignoring the comments on your CIBIL report. Reports generated by CIBIL whether they are Credit Scores or Credit Information Reports play a major role in securing a loan for you from the lender and if apart from the three-digit numerical CIBIL Credit score, there is any observation in these reports, lenders take notice. These comments in the CIBIL-generated reports can hurt your loan approval prospect if they pertain to your settling the loan by deviating from the terms and conditions of the loan or you requesting a lower interest rate mid-term or paying EMIs after Days Past Due (DPD) etc.

4. Instability in Career, Company or Address

Instability in any form and function can damage your CIBIL Credit Information Report. Even if you have a good CIBIL score, your frequent job hopping or instability in your salary or at the organization where you work can negatively affect your loan application. Moreover, if you ever change your permanent address often, it can look bad on your loan application. Lenders are looking for borrowers who they are certain will repay their loan back and so lenders try and give a miss to all those loan applicants who have an unstable nature of job or life.

5. Details Matching with a loan Defaulter

You may know by now that banks, NBFCs, credit information companies, etc. assimilate your payment and credit-related information. This information contains your details such as name, age, address, current employment, and other identifying details. If any of these details match the details of a credit/loan defaulter then your loan application stands a chance of getting rejected even after you have a good CIBIL score. In some instances, the address of the borrower’s home plays the spoilsport as that address might have previously belonged to a defaulter and so when the lender spots a red flag like that, they prefer to reject the loan application to avoid approving a forged loan application.

6. Opting for a Loan with Friend or Sister

If you have applied for a loan with your sister(s) or friend(s), then your application shall be rejected. Joint loans with brothers or parents are preferred and approved usually in the lending industry.

7. Irregular Tax Paying History

Financial institutions prefer borrowers who have filed their income tax returns regularly for the past couple of years before applying for a loan. A detailed history with the Income Tax department is an important factor for the lenders as this is how CIBIL and the lender can verify the applicant-borrower’s information from a government agency.

8. Loan Rejected Before

If the borrower’s loan application has been rejected previously then this information remains present with CIBIL and the earlier prospective lender. When the borrower applies for a fresh loan, this history is pulled up by the new lender. This ‘Rejected Loan’ info then can even weigh out an improved Credit Information Report and a good CIBIL Score of the borrower resulting in his/her loan rejection.

9. Co-applicant has a poor CIBIL record

If you are borrowing a loan alongside another applicant, then you should first check the co-applicant’s CIBIL record. If your co-applicant has a poor CIBIL record then your loan application stands a greater chance of ending up in the rejected pile.

10. Unbalanced Credit Mix

There should be a healthy mix of secured and unsecured loans in your loan kitty. Secured loans such as home loans and auto loans are attained by the borrower by keeping his/her assets such as property and car as collateral with the creditor whereas an unsecured loan such as a personal loan, or credit card is not protected by any collateral from the borrower. That is why it is also called a signature loan. If the loans you previously undertook are unbalanced in terms of unsecured loans outweighing secured loans, lenders will term you too much in credit debt and reject your loan even when you boast of a good CIBIL score.

11. Making Frequent Credit Enquiries

If you apply for multiple loans at more or less the same time or submit an application for the same loan to various lenders, you will termed a frequent inquirer by CIBIL, and even though you may have a good CIBIL score, your loan application stands getting rejected.

12. Demonstration of Savings

If the borrower showcases the lender his/her savings then the lender has a better chance to cross-check your financial profile. However, if the borrower does not submit a detailed financial profile containing their savings portfolio to the lender then the loan may get rejected.

13. Unable to Verify Credentials

If the lender is unable to confirm or verify any or all part of the borrower’s Key Credential Information for some time, then the borrower’s application stands a chance of getting rejected regardless of the applicant’s credit history.

To avoid loan rejection, it is recommended to be actively involved in managing your financial profile. You should check your CIBIL score regularly so that if there is any discrepancy in the report you can fix it and then apply for credit. Also, a rejection of your application might occur if you work in a company where the salary is not timely or many of your colleagues have defaulted on loan payments and/or have bad credit scores.

Also Read: Why it’s important to check your credit reports and scores regularly

When people apply for a loan, the lenders judge their capability to repay the loan through various factors. These influences include the borrower’s income, age, and job stability, and mainly their credit report. Due to the above-mentioned and other such factors your loan application stands getting rejected so take note to sail through the loan approval process.

FAQs

Q. Does loan rejection affect CIBIL score?

Ans. Once the loan is rejected, your credit score will be negatively affected and the chances of getting loan approval in the future are reduced further.

Q. What are the acceptable factors for rejecting a loan?

Ans. There are various acceptable factors for rejecting a loan such as poor credit score, job instability, low income, outstanding payments, high EMI/NMI ratio, etc.

Q. What to do if your loan application is denied?

Ans. In case one lender rejects your loan application, you should not apply for another loan instantly. It is good to wait from 3 to 6 months and then compare the loan offers meeting your eligibility criteria and applying for the one that has the highest chances of approval.

Q. How long should I wait to apply for a loan after being declined?

Ans. After your loan application is declined, you should ideally wait for 3 to 6 months before applying for a fresh loan. You can compare various loans at Paisabazaar and utilize the “Chances of Approval” feature to know the lender who can approve your loan the easiest.

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