Have you applied for a personal loan and faced a loan rejection? Have you ever wondered why your loan was denied? Let’s look at five frequent reasons why banks reject personal loan applications. Before we look at the reasons, let’s have a look at the features of a personal loan.
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What is a personal loan?
Any Indian citizen or resident above the age of twenty-one who earns a monthly income of more than Rs 30,000 can apply for a personal loan, which is an unsecured loan. Unlike purpose-specific loans such as automobile or housing loans, a personal loan can be used for any purpose. The following are some of the reasons why personal loans are so popular:
- Short duration
- Easy to process
- Minimum documentation required
- Quick processing within 24-36 hours
Apply for Personal Loan in a Minute !
Why do banks reject some personal loan requests?
Because personal loans do not need collateral, lenders must carefully assess loan applications based on the documents provided to ensure that the risk of default is minimised. They avoid issuing loans when they perceive the application to be deficient in some way because they cannot accept extra risks.
Reasons for rejection could be –
- Poor credit score
- Low income
- Job instability
- Insufficient information
- Multiple loans
Poor credit score
A credit score, also known as a CIBIl score, is a numerical summary of your credit history calculated by TransUnion CIBIL using information from all of your banks’ credit information reports. To establish a credit history, you must have a consistent income for at least six months.
A credit score ranges from 300 to 900, with 300 being the lowest score and 900 representing the best. For loan applications, a score of about 750 is usually regarded excellent. If you’ve missed payments in the past, it’ll show up on your credit report as a bad credit score.
Lenders place a high priority on this information. If you have a bad credit score, there’s a good possibility your loan application may be turned down. You should wait six months after being refused before applying again. The time between now and then should be used working on improving your credit score.
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- Important Factors Considered by Banks In Personal Loan Applications
The minimum need for a personal loan application is a monthly net salary of about Rs 30,000. If your salary is below this threshold, there is no sense in asking for a personal loan. It is very risky for the lender, and there is a good probability that the application will be rejected.
Pay slips from the previous three months and a bank statement from the salary account for the last six months are required for the personal loan application. Lenders like to provide a loan to someone who has worked for the same company for a reasonable period of time.
If the three focuses on the financial come from three separate companies, or the bank statement shows that you have just switched jobs, the lender will be suspicious unless you can offer acceptable reasons.
The organization’s quality and stability are also taken into account. Because of the employment security, those who work for government agencies or blue-chip companies are automatically given preference over others.
Personal loan applications just demand the minimum needed of information. It is important to complete the application accurately and in accordance with the submitted papers. Any mistake or missing information might result in the application being rejected. To have a good chance of getting the loan approved, the borrower must supply accurate and full information as well as upload all required documents.
It’s possible that your application may be refused if the lender notices on your bank account that you’re currently servicing numerous debts. The lender may believe that servicing an additional debt will be difficult for you, increasing the chance of default. It is preferable to keep your total EMIs under 50% of your net monthly income.
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Personal loans are available from most banks to those who have a long history of work. Your personal loan application is likely to be refused if you do not have a stable job or if you have a history of quitting jobs many times. Most banks prefer customers who have a steady job or company and a consistent income. The above listed are the most common reasons why banks reject personal loan request.