Personal loans aren’t always planned. Unlike a vehicle, education or home loan, personal loans don’t usually feature in an individual’s plans. However, when the time arrives for someone to take a personal loan, usual factors determine their eligibility. Therefore, it helps to have a stable and healthy financial history, so such personal loan applications aren’t rejected.
Common Reasons for Personal Loan Rejection
Low credit score
Every financial advisor will tell you that having a good credit score is paramount to securing funds or a credit card. If your credit report doesn’t reflect your creditworthiness, then a personal loan application may get rejected. A good credit score is anything above 750. Therefore, if your credit score is much lower, say in the 400-600 range, a rejection is quite possible.
To counter this, it would help to work towards building your credit score and taking it above 700. Curb your expenses and save more. Repay any debts you might have on time and pay them in full instead of the minimum due.
If you’re an individual who tends to keep shifting jobs or are self-employed, there may be a possibility that your personal loan gets rejected. This is because lenders prefer someone who is stable with their job and can prove that they have a credible source of income, even if this income is passive. Lenders need to know that they will get back the amount they’ve loaned.
To counter this, try to stick to one job for a few years and maintain a consistent employment record; if you’re an independent writer, editor, or any other self-employed person, try to see that you’ve been independent for a few years and have the ability to repay debts.
Incomplete or incorrect information in loan application or credit report
There must be a consistency in the information you submit on the loan application form as well as your credit report. For instance, any change in your name or address must be reflected in your forms. Even mistakes in your PAN card details can lead to your personal loan application getting rejected.
To counter this, do a due diligence of all the documents that you submit. Update any change in name or address immediately, and then apply for a loan.
Current loan portfolio
If you’ve taken a few loans already, lenders would like to see whether you’ve been clearing your dues consistently. Don’t bite off more than you can chew. The existence of multiple existing loans may tell a lender that you might be in a financially tight position, and thus, unable to repay the personal loan.
To counter this, keep your monthly EMIs as low as possible and close off as many loans as you can. Another option could be to consider a debt consolidation loan, which will combine all your existing loans into one single loan, thereby making it simpler to track your payments and even get a lower rate of interest.