Personal Loans are referred to as unsecure loans as you do not need to provide any security or collateral for the loan. That's why the lenders scrutinize every Personal Loan application using an extremely meticulous comb. If even one element doesn't meet their criteria for eligibility and they deny the application. Banks don't be willing to put their money at risk unless they can prove that everything is absolutely perfect. So when your application is rejected, it's most likely due to seven of these reasons:
1. Your Credit Score
Are you paying the EMIs as well as credit card charges punctually? If you have a chance that you've fallen behind on the payment of your bill your credit score may be low. A low credit score doesn't appear good on your financial report. If your past record shows negative marks, banks realize that there are possibilities of your defaulting in the future. So, banks are given an argument to decline your application for a loan.
The Personal Loan application may be rejected even though you don't have any financial products , such as an account or credit card. This means that you have a poor credit rating that can make lenders wary of approving the loan.
2. High Debt
Your ratio of debt to income is significant to lenders. In the event that you've too many debts on and nearly 40 percent to 50% of your income is used for payments, then banks might not want to extend a loans to you. A lot of loans can cause them to wonder if you are able to repay them or not. Once you reach a certain point your earnings will be inadequate, and you'll be in default. Therefore, it's better to repay a loan or two prior to applying for a new loan.
3. Unstable Employment
If you've been switching your jobs at least every 6 months, then the loan you apply for is likely to be placed in the pile of rejected applications. The lenders must be aware that you are employed in a steady job and an ongoing income that will ensure the loan's repayment. However, if you've had a tendency to change jobs frequently they will not be able to trust your stability. Today, banks generally have requirements that require you to stay at the same place for at the least one year. Anyone who does not meet the criteria receive rejected for their application for a loan.
4. Your Total Earnings
If the amount you earn is not enough to cover the EMIs and the lender might decide not to grant you Personal Loans. It is important to verify their eligibility criteria thoroughly and assess yourself prior to applying. The majority of banks have the minimum income requirement, which you must meet. Your income must be at or greater than your EMI.
5. Incorrect information in application
Sometimes, everything could be perfect however, your application may yet be denied. It could be due to something simply a matter of incorrect information, missing documents or a mismatch with the evidence you've provided. Therefore, ensure that as you fill out the application, you have made sure that you do not make any mistakes. Make sure you double-check all information and the documents you provide at the time of application to the institution.
It is also important to look over your credit report to find mistakes. There is a chance that you are not doing any wrong thing, but instances such as identity theft or incorrect entries could lower your credit score.
6. Too Many Rejections
Did you know that every loan request you submit is recorded with your credit bureau? Therefore, each time you apply for a loan and it is rejected, it appears on your credit file and reduces the score. The repeated application can negatively affect your credit score.
7. Age, Work Experience and Right Age
There are many banks that have strict regulations about the age of loan applicants and the length of their employment. Most of the time, you must be employed for a total that is at least two years prior to applying for a personal loan. Additionally, you need to be at the age of 21 to be qualified to apply for the loan. The maximum age for loan applicants is retirement age or 65 years old.