Personal loans are unprotected loans that you may get without any collateral. An unsecured loan is risky for NBFCs and banks since it lacks the safety of a pledged asset. Due to this factor, banks have created strict policies for approving loans. They have created several internal standards that you must meet before applying for a personal loan. Personal loans are often used in times of urgency, such as for health issues, paying tuition fees, marriage expenses, etc.
Getting your loan request rejected when you need it the most hurts a lot. This post is for you if you have faced personal loan rejections and are seeking methods to apply again for a personal loan.
Personal Loan Rejection Reasons
Reasons that might lead to your Personal Loan Rejection:
- Poor CIBIL Score.
- Incorrect or incomplete data.
- A poor investment profile.
- The temporary address is not verified.
- Previous defaulted loan.
- The request for a term change follows application acceptance.
- The request for an increase in loan sum after the application’s approval
- Mismatched signatures on papers and checks.
- Inconsistency in co-applicant data and papers.
What to do if the Personal Loan is Rejected?
Step 1: Assess the Cause of Personal Loan Denial
It will be hard to figure out what actions to take to improve the situation before reapplying for a loan unless you know the cause of personal loan rejections.
Lenders must provide you with data about personal loan rejections within 30 days. You will get a loan denial letter that will explain why the bank denied your loan. Some typical causes for personal loan rejections include:
- A poor credit rating
- Uncertain job
- Low earnings
- Working for a private firm that has been delisted
- Not meeting the age limit
- Staying at an address that is on the defaulter list
If you don’t understand the cause or need more information, you should call the bank to seek clarity.
Step 2: Determine the Credit Score
Credit ratings are vital in deciding whether a loan is granted or denied. Once your credit score has been checked, lenders will only look at your income and ability to pay back the loan.
Personal loans are unsecured loans; thus, you must have a strong credit score to obtain the loan. They find out if you don’t know what your credit score is. If you have a poor credit score, you should think about the factors behind it. It may be due to credit score flaws or credit patterns.
Try to figure out the errors on your credit report. You must learn how to check credit reports properly. If the problem is due to clerical mistakes, such as misspelled words or names, then get it fixed, and reapply for a loan.
If the score is poor, you must first fix that bad account. Once fixed, it may boost your credit score. You may also apply for secured loans, which banks are more likely to accept since the risk factor is lower. At the same time, you should make sure that you don’t skip any payments and stick to the approved credit usage ratio.
Step 3: Assess whether the debt-to-income ratio is fair
In certain cases, the loan is denied owing to a lack of income. In this instance, you may apply for loans created for people with little income. You might also try reapplying with a smaller sum if you believe the amount asked in the initial form was too high.
You may also wish to pay off some of your current debts if you believe your credit mix is skewed toward unsecured loans. Banks want a healthy balance of secured and unsecured loans.
Step 4: Check the Paperwork
Personal loans are common since the paperwork needs are minimal and the loans are disbursed quickly. The personal loan process often requires the following papers:
- Identity Papers
- Address Proof
- Income related papers
- Account reports
If the earlier loan request got rejected due to faulty papers, then make sure that your paperwork is in order, and then contact the lender. If not, make plans to get things in order before reapplying for the loan.
Step 5: Explore Other Choices
Standard sources of funding, such as banks and financial firms such as NBFCs, sometimes have very strict lending standards. It becomes hard for self-employed people and those with poor or no credit ratings to get loan approval. If you don’t have time and need cash now, you might check into other lending sources.
Many fintech banks are in the loan sector and serve people with low income, self-employment, and poor credit scores. They give loans to various people since they use other data to enhance a user’s credit score. You might also choose a good gold loan or a loan over a fixed deposit.
Ways to Avoid Personal Loan Rejection
Check the ways to avoid getting your loan rejected:
- Compare the products and pick the one that best meets your demands and budget. If the bank thinks you cannot repay the loan, they will not approve it.
- Check the eligibility for the product of interest. You should not seek a loan that you may be ineligible for. Too many personal loan rejections can harm the credit history.
- Find out what factors the bank will ask for, such as bond yields, service charges, repayment options, and so on.
- You must submit any required paperwork and assist with the validation process. Check that all the data in the request is valid and matches the related paperwork.
- You must keep a decent credit score by not overborrowing, paying the bills on time, not missing EMI payments, paying the taxes on time, filing returns, not taking several loans, and using credit cards sensibly.
- Before taking out a loan, a credit record of at least six months is reviewed. If there is an error, get it fixed. If the score isn’t high enough, raise it over 750 for a greater chance of loan approval.
You must keep track of your progress while trying to boost your credit score. For this, you may apply for a free yearly copy of your credit score from credit firms. You must gradually improve your credit scores and keep your credit records clean to have the personal loan application accepted after it has been rejected.
Do check the official website of Piramal Finance to get detailed knowledge on a personal loan. They have many informative and nicely written blogs, which may prove helpful for you.