Rejection of a personal loan application can come as a serious blow to your financial plans. You wonder why your request was denied and what you should do next? Should you try your luck at a different bank or should you first take some measures to prevent it from happening again?
Do not panic. The first thing that you should do is it to find out the reason for rejection. Each lender has some criteria to determine whether you are eligible for the loan and what quantum of loan you can take. These criteria can relate to your credit score, income or job stability. Below are some reasons why you may be denied a loan and the measures that you must take to rectify them.
The stability of the applicant’s job is of utmost importance to the bank. In fact many lending institutions insist that the applicant should be permanently employed in a particular company for three or more years in order to be eligible for the loan. They also consider the stability of the company in which the prospective borrower is working. Basically the banks want to be sure that the applicant will continue to have regular stream of income that will enable him to service his loan obligations easily. So if you were job hopping in the recent past consider sticking to one company for a while to show stability.
If your loan application was ever rejected before, that record gets added in your credit report. Such entries affect your credit worthiness and act as a warning sign for future lenders. It is advisable not to apply to multiple banks simultaneously. If for some reason your application gets rejected at multiple banks, all these entries will get recorded in your CIBIL report and tarnish your credit profile. It is better to wait for one bank’s reply first and work on the reason for rejection before you approach another lender.
Residential address in defaulter’s list-
If your residential address is same as a defaulter whose missed loan or credit card payments were reported to CIBIL then your request for a loan application may get rejected. The chances are the address has got classified in bank’s loan defaulter list. But if the bank cites this reason for rejection then there is no reason to panic. You can convince the bank about your credibility by sharing your identity details, credit score and past loan behaviour.
Insufficient capacity to service the loan
If you are already juggling with a number of debts then the income that you are left with after meeting your current debt obligations might not be enough to take care of a new loan. If the bank is not convinced about your ability to repay the loan, it will reject your application. If you are overleveraged it is better to pay off some loans and reduce your liability before applying for a fresh loan.
Poor credit history
A credit score instils confidence in the lending institution about your ability to repay the loan. Hence higher the score, higher are the chances of loan approvals. Most banks have policies regarding a minimum credit score that an applicant should have in order to get an approval. Apart from the score banks also look at the payment history of the previous loans that you have taken. Your past performance is a strong indicator of your future behaviour. A tainted credit history with defaults, written off loans, delayed EMIs or high outstanding amounts on credit cards will hamper your ability to secure new loans. If you were denied loan because of a bad credit history it is not the end of the world. By adopting good credit habits and paying your EMIs and credit card bills on time you can start building a good credit profile.
It is always good to improve credit score before applying for loan. But improvement in credit score takes time. If you are in immediate need of funds you can try offering collateral for a personal loan. By offering something of value you can increase your chances of approval. Alternatively, get a co-signer who has a god credit record and is willing to take the responsibility of the loan along with you.
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