A Personal Loan is an unsecured loan that can help you solve your current financial needs immediately. Being unsecured, a Personal Loan does not require any security or collateral. You can use the funds availed for any purpose as per your requirement. This credit option can help you cover your travel, home renovation, medical emergency, wedding and other expenses in a short span of time. You do not need to mention the purpose of availing this loan to the lender.
However, you need to be careful while applying for a Personal Loan as tinniest of errors can become a hindrance in the approval. Let’s analyse as to what could be the reasons why Personal Loans are rejected and what are some of the most common mistakes people do which could lead to a rejection.
Reasons for Personal Loan Rejection
- Applying for the loan with a low credit score: A simple reason like a low credit score can be enough to have your Personal Loan rejected by the bank. The higher your score, the more chances you have of getting your Personal Loan approved. A score of 700 or above is ideal for a Personal Loan.
- Submitting incomplete documents: Let’s say you are trying to procure an HDFC Personal Loan. You need to submit the necessary documents to avail a Personal Loan from HDFC. If you do not have the complete or right documents, it could lead to the rejection of your loan. You need to read the guidelines carefully and have a checklist ready so that you do not miss out on any important documents.
- Not having a steady source of income: Banks do pay a lot of attention to your ability to repay the loan. This is why they require documents to make sure that you have a steady source of income to pay back your loan on time. If you have changed your job recently or don’t have one, avoid trying to get a Personal Loan. Make sure to add other sources of income as well when applying for the loan like rent receivable, income from freelance or part-time job, and so on.
- Unmatched eligibility criteria: Banks do not just check your income, but also check your age, address, company type, job/profession type, and other parameters to analyse your eligibility for a loan. For example, to Avail a Personal Loan, you need to be at least 21 years of age. Besides that, you need to be in a city where the lender operates in. If you do not fall in the age category or under the location limits, your loan can simply be rejected.
- A large number of applications in a short time: Sometimes, banks may receive an overwhelming number of applications for Personal Loans. For example, when a university receives a large number of applications for the same course which is beyond its seating capacity, it may reject a few applications even if there is no reason to do so. In the same way, the number of applications is another criterion for Personal Loans approval or rejection. Also, if you apply too many times for the same loan, it might turn you into a risky candidate and prove to the bank that you are credit hungry.
Common mistakes to avoid so that your Personal Loan is not rejected:
- Applying for a Personal Loan without checking your credit score: Not checking your credit score can easily lead to loan rejection because that is the first thing that banks look for. If you do not have a good credit score, your chances of rejection are quite high. You can improve your credit score and then consider applying again. There is also a chance to try getting a loan from private lenders such as PaydayAvailable.com as they often do not check your credit history.
- Applying too fast: There are many people who tend to avail a Personal Loan based on instant approvals or referrals. It is not wise to immediately apply as soon as you find one without looking at the interest rate and other factors. You must shop around and analyze the rates in the market before applying.
- Applying before reading the guidelines properly: You must read the terms and conditions of the loan carefully before you put your signature on it. Some of the terms may not be favorable to your repayment capacity. Hence you must go through them to make the best choice for yourself.
- Applying for a long-term Personal Loan: People may tend to opt for a longer term, so they do not have as much burden of paying their EMI. However, longer-term comes with more interest rate. Smaller loans will help you get it repaid as quick as possible and reduce your overall loan burden.
- Applying for a loan with no specific purpose: The primary purpose of a Personal Loan is to fulfill a financial need. If you are taking a loan for reasons like vacations and parties, you might regret it, and it will become a burden for you later.
- Applying without checking your eligibility: Different banks have different eligibility criteria. It depends on the age, income, credit score, employment, and location of the borrower. Check your eligibility before applying so your application doesn’t get rejected.
For any kind of loan, make sure to follow these tips to ensure that you have a higher approval chance.