A borrower’s good CIBIL Score is synonymous with a 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 borrower
Banks and Non-Banking Financial Companies 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/repaying 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 turns the lender to turn down the loan request of such an applicant.
2. Guarantor to a 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 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 for a lower interest rate mid-term or you paying EMIs after Days Past Due (DPD) etc.