Financial institutions consider several factors when you apply for a loan. Some of these include your income, age, and employment stability. One of the most important factor taken into consideration is your credit report, which reflects your creditworthiness.
Here are five common reasons why your loan application may be rejected:
- Bad credit card or loan repayment history
Credit Information Bureau India Limited (CIBIL) maintains credit scores for all individuals. If your credit card bill is long overdue, it reflects poorly on your credit score. Your score is also negatively impacted if you have defaulted on the Equated Monthly Installment (EMI) of your loan. In such instances, the financial institutions often reject your personal loan application.
- Outstanding loans and low income
If you already have several outstanding loans, your net income will reduce. The lenders may reject your loan application if the additional amount would result in straining your financial situation. Furthermore, if the net available income is found to be insufficient to service the loan, the institutions may reject your application.
- Frequent job changes
Most lenders look for job stability when you apply for a personal loan. Some institutions may require you to be employed with the same company for at least three years to make you eligible for the loan. In some cases, if your employer has an unstable future, the financial institution reserves the rights to reject your loan application.
- Poor credit score of the co-applicant
You can include a co-applicant on your loan application to increase the loan amount. However, it is important to remember that the credit score of the co-applicant must also be good to ensure your application is not rejected. If your credit score is good but that of the co-applicant is poor, the application may still be rejected by the lenders.
- Prior rejection of your loan application
You must remember that while availing personal loans online is easy, you must not apply frequently. If one or more of your loan applications have been rejected, it negatively impacts your credit score. As a result, the lender may reject your current application.
Applying for a loan from a bank may be difficult as banks have more stringent eligibility criteria as compared to non-banking financial companies. Furthermore, leading NBFCs like Fullerton India and Capital First provide quick and easy loan application procedures. The entire process is completed within a short period of time at affordable personal loan interest rates. It is recommended that you apply with an NBFC to reduce the possibility of rejection.