Multiple loan options are available in the market, and anyone can apply for them once they meet a few basic parameters. However, financial institutions are very particular about choosing their customers, especially if it is an unsecured loan. And a factor that plays a critical role here is a good credit score, as a Personal Loan for a low CIBIL score difficult to get.
However, there are instances where your loan application will be rejected even if you have a good credit score. But when does that happen? Read on to find out.
Reasons why your Personal Loan gets rejected
Here are the reasons that lead to the rejection of a Personal Loan application even after a commendable credit score:
History of payment default
If you have a history of payment default, it can make qualifying for Personal Loans difficult. The reason is lenders will consider this factor as an indication of loan default. So, even with a high credit score, you will need a sketchy repayment history to work in your favour.
Not having the repayment capacity
Low income can also lead to the rejection of Personal Loans. Lenders typically consider an individual’s income a critical factor in determining their ability to repay the loan. So, if your income is low, you need more means to make timely loan payments. For that, you can add your income from other sources like interest, rent, etc. However, it’s not necessarily an automatic disqualifier, and you, as a borrower, still have a chance to prove that you can repay the loan to convince the lender.
Not submitting the proper documents
Financiers require certain documents to evaluate an individual’s creditworthiness and loan repayment ability. If you have submitted incomplete or inaccurate information, it can also lead to the rejection of the loan application. Once you use the best app for online loans, you will find the details easily.
Mistakes in the loan application
Loan applications require accurate and detailed information; even small mistakes can significantly impact the creditor’s decision to approve or reject the loan. These mistakes can make it difficult for the financial institution to evaluate your creditworthiness and may result in the rejection of the loan application.
History of loan application rejection
The lender will review your credit history and financial information to determine your creditworthiness. If you have a history of loan application rejections, it could indicate to the financial institution that you have had difficulty managing your finances, which can lead to a rejection of your Personal Loan application.
Employment instability
Employment stability is an essential factor that lenders consider when evaluating your creditworthiness for a Personal Loan. Suppose you have a history of frequent job changes or running a business that is not profitable regularly; it may work against you.
Having high existing debt
Having high debt can significantly impact your chances of getting approved for a loan, including Personal Loans. Since your debt-to-income ratio will increase, leaving you little room to manage another loan. Hence, the possibility of rejection.
Applying with multiple lenders at once
Applying for a Personal Loan with multiple lenders simultaneously is known as ”loan stacking,” which can negatively impact your credit score and portrays you as a credit-hungry borrower. Therefore, it may become difficult to get loan approval.
Wrapping up
Now that you know the reasons for rejection, you should be diligent and wise about your choices and apply for a loan when you fulfil all the eligibility parameters. Remember to check the loan terms to avoid any issues.
