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Reasons for Rejection of Personal Loan Application

Why Personal Loan is Rejected?

Last Updated 13th Jun 2021

  • A personal loan is one of the easiest ways to meet the immediate requirement of cash.
  • It is offered at a higher rate of interest when compared to other loan types like home loan, gold loan etc.
  • A personal loan can be availed instantly, and an applicant has to submit only KYC documents.
  • If an applicant has a low credit score, no steady income, multiple inquiries or any other reason than the application can get rejected.
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Reasons Why Personal Loan can get rejected?

Personal loans are one of the best loan ptions to meet our immediate requirements of cash. Personal loans are the most flexible loan option as firstly, they do not require any collateral and secondly, the loan proceeds can be used for any personal requirements. However, this flexibility comes at the cost of a relatively higher interest rate as well as the stringent credit appraisal process. As the loan is unsecured, banks use a more strict credit appraisal criteria in approving a loan application. As a borrower, you need to understand the common reasons for rejection of personal loans and watch these factors to reduce the chances of personal loan application rejection.

  • Poor credit score:All banks and finance companies check customer credit score rates to evaluate the customer’s creditworthiness. Since a personal loan is a security free loan, the lenders rely on your credit score to decide to lend or not. Leading banks in India will approve your loan, only if you have a CIBIL score of 700 and above. Make sure to pay all credit bills and EMIs on time to maintain a good credit score and reduce the chances of loan rejection.
  • Inadequate Eligibility: Lenders analyse your monthly income to see if you will be able to repay your loan. You would also be required to submit income documents to establish your income eligibility. Your application is most likely to be rejected if you do not meet the lender’s income requirements. Calculating your loan amount eligibility and applying for a loan amount you are likely to be eligible for can improve your chances of getting a loan.
  • Occupation: The rate of interest offered to you depends on your designation and company profile for salaried borrowers. Bigger and reputed the company you work for, better are the chances to get the loan approved. Banks consider occupation and business continuity an important criterion to judge your repayment capacity, and unstable work history can negatively affect your approval chances.
  • Mistakes in the application form: It is common to make errors while filling the application form. Small errors and slippages such as missing crucial information, entering incorrect details, etc. can result in a rejected loan application. Similarly, it is important to monitor your credit score and report for any reporting errors to get them corrected as it can result in your loan application rejection.
  • Multiple inquiries: A section of credit report highlights all loan queries by the prospective borrower. Multiple and parallel credit queries within a short period can further increase chances of loan application rejection. It reflects the desperation to get a loan and your inability to get a loan from other banks.
  • Age: Personal loans are generally given to people from a certain age group, mostly 21 to 60 years of age. If you are too young or too old, the chances of a personal loan application being declined are higher. Moreover, they are generally offered to customers who have a regular source of income.
  • High loan balances: Your application is most likely to be rejected if you haven’t been paying down your loan balances or you’re using too much of your available credit. Reducing your loan balances and using only a portion of the credit available to you can help you get approved.
  • Unsecured Loans: Ratio of secured and unsecured loans matter a lot when you apply for a personal loan . A higher number of current unsecured loans than secured loans reduces the chances of your personal loan application approval.
  • A credit score is undoubtedly, the most important parameter used by banks in deciding to provide personal loans. However, banks also consider other factors such as education background, job continuity, age, residence stability, etc. before taking a final decision to lend. To improve your chances of getting a personal loan, it helps to pay your dues on time, maintain a good credit score and submit your loan application with adequate care.

FAQs

What two things you should do if your personal loan application keeps getting rejected?

If your personal loan is rejected, you should clear the explanation letter provided by the bank. The second thing we should work on is improving your credit score.

Why do I keep getting rejected from a personal loan?

Lenders will reject your personal loan application form if you do not fulfil any of the bank’s eligibility criteria.

What happens when your loan gets rejected?

If your loan gets rejected, it will not impact your credit score as it will not be considered the hard inquiry.

What is the eligibility criteria of the Axis Bank personal loan?

To avail a personal loan from Axis bank an applicant should be between 18-60 years of age, minimum net income should be₹ 15,000, and he/she should have a credit score above 650 and above.


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*Terms and conditions apply. Credit at sole discretion of lender, which is subject to credit appraisal, eligibility check, rates, charges and terms. Information displayed is indicative and collected from public sources. Read More
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