A personal loan is an effective option for someone looking to finance their short-term financial needs. If you are looking for a loan to meet expenses such as marriage, travel, vacations, or others, a personal loan could be an option. Although applying for a personal loan can be a quick process and easy to apply, there could be reasons why your application might get rejected. Knowing why your application got denied would help you prepare yourself for the next time you apply for a loan.
The reason for the rejection of the application is that personal loans are unsecured. Leaders need to make sure that the borrower applying for a loan has the financial strength to pay back the loan in time. So, before applying for a personal loan, you need to know all the reasons a lender could reject the application to prepare accordingly. Let’s look at some of such common reason for lenders would reject the application:
Low credit score: This is one of the most common reasons for the rejection of a personal loan application. If you have a bad credit score, your loan application might get rejected. Credit scores vary from 300 to 900. A credit score of above 750 is considered to be ideal.
There are ways you can improve your credit score. You can avoid unnecessary credit card usage. To maintain a good credit score, you should always pay off the loan quickly. Also, an applicant with no past credit history may face rejection. You can apply for a loan with lenders with whom you have existing relationships.
Job Instability: before approving a loan application, lenders check for your current job status. If you are working for a well-reputed company and/or working for the same company for a long time, lenders are assured of the job stability of the borrower.
If you switch between jobs quite often, your loan application is likely to be rejected. Salaried individuals are often preferred over entrepreneurs because they have a fixed source of income.
Higher debt to income ratio: Debt to equity ratio determines the debt burden on the individual’s earnings. The higher the debt on income, the less likely the loan will get approved. Before applying, if your debt to income ratio is already high, lenders may be reluctant to approve your application. Your credit repayment history needs to be clear. Ensure timely payment of all your installments. Also, the number of unsecured personal loans should be less than the secured personal loans. Incomplete documents or incorrect details in the document: before the loan gets approved, it goes through verification. If some details in the document are misleading or wrongly filled, it may lead to the rejection of your application. Before applying, ensure checking the eligibility criteria and loan application guidelines.
Ineligible to apply: There can be another criterion that may differ from bank to bank. Before applying, you must consult the concerned lender to know if you fulfill them. Some criteria could be out of your hands, such as age, educational qualification and nationality.
Conclusion: After reading the blog, now you know all the reasons as to why a loan application might get rejected. It is thus advisable to keep these points in mind. Ensure you have a good credit score, low debt to income ratio, and all the essential documents are correct. It will assure your application approval to a large extent.