Personal loans, also known as unsecured loans, get their name because borrowers are not required to pledge any assets as collateral or security against the loan.
For this reason, the financial institutions scrutinize every Application for a Personal Loan with extreme attention to detail.
The application is turned down even if there is just one factor that does not fulfill their requirements for eligibility.
Financial institutions will not put their money at risk until they are confident that everything is flawless.
Consequently, if your application was declined, it was most likely due to one of the following seven reasons, which are the most common ones:
Below are the common reasons for personal loan rejection
1. Your Current Credit Rating
Have you been keeping up with the timely payments of your EMIs and credit card bills? Your credit score could be considered low if there is even the slightest possibility that you have fallen behind on your bill payments. Your financial profile will not look favorable if you have a low credit score.
When your history contains negative markings, the banks are aware that there is a possibility that you will default on payments in the future as well.
The financial institutions will deny your request for a loan for this significant reason.
Even if you don’t have any other financial products in your name, such as loans or credit cards, your application for a personal loan could still be denied.
It indicates that you have a limited credit history, which causes potential lenders to have second thoughts about approving your loan.
2. Extremely High Debts
Your debt to income ratio is one of the most critical factors for lenders to consider.
Suppose you already have an excessive number of loans, and nearly 40 to 50 percent of your income goes toward paying back those loans.
In that case, financial institutions may be hesitant to extend you yet another loan.
When you have too many loans, people will start to question whether or not you will be able to pay back what you owe.
At some point in the future, your income will become insufficient, and you will default.
Therefore, it is in your best interest to pay off one or two loans before applying for yet another loan.
3. Unstable Employment
Your application for a loan will most likely be placed in the “reject” pile if you have a history of switching jobs every six months or less frequently.
Lenders will want to know that you are employed full-time and have a consistent income, as this will demonstrate that you are able and willing to repay the loan.
However, if you have a history of frequently switching jobs, they will be unable to rely on your consistency.
These days, most financial institutions require that you have been working in the same position for at least a year as part of their qualifications.
The loan application of any person who does not satisfy this requirement will receive a rejection letter.
4. The Sum of Your Earnings
Before applying, you should make sure that you satisfy their eligibility requirements and conduct an honest assessment of yourself.
You must meet the minimum income requirements set forth by most banks.
Your income must be higher than or equal to your EMI; it cannot be lower.
If the amount you earn is not sufficient to pay the EMIs, then the financial institution considering providing you with a Personal Loan may decide not to do so.
5. Inaccurate Information Provided in the application
Even if everything is in order, there is still a possibility that your application will not be accepted.
The problem may be something as straightforward as incorrect information, a missing document, or an inconsistency with the evidence you’ve already provided.
Therefore, while filling out the application, you should ensure that you do not make any mistakes.
Check and recheck every piece of information and every proof you present to the bank.
It would help if you didn’t forget to check for any mistakes on your credit report.
Your credit score can drop for reasons not your fault, such as when your identity is stolen or when you make a mistake entering information into a computer system.
6. An Excessive Amount of Declines
Did you know that the information is reported to the bureaus that track your credit each time you apply for a loan? Therefore, every time you apply for a loan and are turned down, it gets recorded in your credit history and brings down your credit score.
If you submit too many applications, a negative reflection will also be left on your credit report.
7. Appropriate Years of Work Experience and Age
The applicant’s age and length of employment are two of the most critical factors many financial institutions consider when determining whether or not to grant a loan.
Before you can apply for a personal loan, you will typically be required to have a cumulative work history of at least two years.
Similarly, the minimum age requirement for receiving the loan is twenty-one years.
The maximum period is equal to or greater than 65 years old, whichever comes first.
Your application for a loan does not come with an assurance that it will be approved.
The errors that have been given above are the ones that occur most frequently, and you must do everything in your power to stay away from them.
If you intend to apply for a Personal Loan shortly, you should make sure that your credit history is spotless and that you provide accurate information.
However, whether or not you are approved for the loan depends on the eligibility criteria established by the provider. You have no choice but to adhere to these few basic requirements.