Money which is borrowed by financial institution and spent according to one’s own wish and desire is often known as personal loan. People usually opt for personal loan in situations where they are in dire need of money and have no other source to fund their expense for the time being. Just imagine, what will happen if your personal loan application gets somehow rejected or you are unable to arrange funds to meet or prioritize your financial requirements.
There can be several reasons as to why your personal application got rejected. Some may be known or some remain unknown to you as some applications are rejected solely on the bank discretion despite the applicant meeting major eligibility criteria.
While there is no sure shot answer to why your personal application may get rejected, there certainly are some scenarios in which this situation may arise.
So, lets discuss and understand few important factors that may minimize your chances of personal approval.
Multiple Loan Enquiries and Applications
Each time you apply for a personal loan, the bank makes an inquiry for your credit report with the Credit Bureau and checks your credit score. The credit bureau takes these as hard inquiries and mentions it in your credit report. When you apply for multiple loans simultaneously, most lenders and financial institutions perceive you as a credit hungry person who is unable to handle his/her money properly and is always on the lookout for borrowed money.
Therefore, multiple loan applications can impact your credit score negatively. To avoid this situation, instead of making too many applications for credit, you must do your research properly and compare your options in advance. After considering and observing all valued options, apply for the only loan you actually want to avail.
Poor Credit History / Error in Credit Report
Your 3-digit credit score has a huge impact on whether your personal loan application shall be approved or get rejected. Your credit score ranges between 300-900, wherein score close to 900 is considered good. TransUnion CIBIL generates and allocates a credit score on the basis of your credit repayment history. The chances of your personal loan getting approved depend on how close your score is to 900 or sometimes above 750.
Also Read: Reasons for Low CIBIL Score
Your credit score will also help banks make an assessment of your risk of default. Every credit score has a maximum and minimum percentage of default which is commonly known as the probability of default. The percentage is directly proportional to the risk of you defaulting on a loan.
If there is any error that is reflecting in your credit report, then it is always recommended to raise dispute with your credit bureau and get it resolved at the earliest. Error in your credit report may lower your credit score and may eventually result in your personal loan application rejection.
Higher Existing Debts
Your personal loan application may get rejected if your prevailing debts are on higher side. If you currently possess too many open credit lines, such as credit cards and loans, your prospective lender where you are applying for a personal loan will consider that you are over burdened with credit and may end up in default. Your high debts make you stand at risk in the eyes of lender, which may result in your personal loan rejection. The best way you can avoid such a situation is by paying off your current debts and afterwards applying for a new personal loan.
Sometimes, several borrowers intentionally minimise their existing debt repayments in the hope of getting a higher loan amount. However, this will easily misfire on them as lenders would refer to their credit reports before approving loan amount and this will necessarily include all the existing debt obligations in it. Therefore, this sort of misinformation can also lead to the rejection of your personal loan application.
Annual Income Criteria Not Met
Generally, most of the lenders have defined minimum income requirement and if you have applied for a personal loan amount, which is more than your eligibility, then your loan application is likely to get rejected. To avoid this condition, you must talk to your lender before filling the application form. Additionally, you could also look out for NBFCs (Non-Banking Financial Companies) where your annual income is not the most important consideration.
Unstable Employment History
Most banks offer personal loans to people who have a stable history of employment. If you do not have a stable job or have a history of quitting jobs multiple times, your personal loan application is likely to be rejected. Most banks want a customer with a stable employment or business and a regular income. People changing jobs at frequent duration are considered less worthy by lenders to get loan approvals or the offered personal loan interest rates are on higher side for those individuals.
Remember that lenders will verify everything you provide in your personal loan online application. So, double check the information you provide before submitting your instant personal loan application. If the lender finds any inconsistency in your information, they will out rightly reject your loan application.
Even though, personal loans are offered at reasonably high interest rates and shall be considered as among the last options for availing credit, they are generally favourable during urgent cash requirements, particularly when low processing time is a deciding factor.