Personal loans are an excellent source of finances for people who need money quickly because they may be disbursed quickly, there are no restrictions placed on how the money can be used, and collateral is not at all required. However, when lenders say no to their application for a personal loan, many applicants don’t know why it happened.
Let’s take a look at some of the common reasons why a borrower’s application for a personal loan can be denied, despite them being aware of and checking my cibil score.
With a poor credit history or none at all, the majority of lenders give preference to borrowers who have a strong credit history that demonstrates financial discipline and a high capacity for repaying the loan back. Given that a high cibil score required for a personal loan is a vital eligibility criterion, a poor credit history/score can get the application rejected. It indicates that the borrower has not been responsible in the past with regard to the management of loans or credit cards, and as a result, the borrower is more likely to default in the future as well. Some behaviours, such as paying bills late or skipping instalments on loans, can contribute to the development of an unfavourable track record, which can then result in a lower credit score.
In addition, prospective borrowers who have not yet utilised any kind of credit, whether in the form of loans or credit cards, do not yet have a credit history associated with their names when they check my cibil score. As a result of the lack of credit history, some lenders may consider it to be riskier to lend to such borrowers. As a result, the personal loan applications of many borrowers may be denied, or they may be charged interest rates that are higher than those charged to borrowers with more established credit histories.
Failure to meet set eligibility criteria- Besides lenders putting forth the criterion that cibil score required for personal loan should be high, every lender also has its own set of eligibility criteria for the numerous credit products they offer, and these criteria can be very specific. In order for potential borrowers to qualify for a credit card or loan, there are certain requirements that must be satisfied on their end. These qualifying conditions often consist of a minimum required income and age, in addition to other factors such as place of residence, the status of my cibil profile etc. The application for a personal loan submitted by many borrowers is denied in the first step either because the borrower does not satisfy the fundamental eligibility criteria or because their residence is in an unserviceable location.
Borrowers need to utilise loan eligibility calculators prior to completing their credit applications in order to reduce the likelihood of experiencing similar disappointments following the submission of their loan applications.
Higher EMI to income ratio – Even if you think you have a high cibil score required for personal loan, wait and check your existing EMIs. The EMI to income ratio refers to the proportion of the borrower’s income that is already being paid out as monthly instalments for fixed monthly obligations such as EMIs. The vast majority of creditors prefer to extend credit to borrowers who have an EMI to income ratio that is between 40 and 50 percent, inclusive of the obligations associated with the present loan application. If your EMI to income ratio is greater than 40-50 percent, there is a significant likelihood that the lender will not approve your application for a personal loan.
An unstable employment history-This is a major deterrent for many lenders, who are resistant to give loans to borrowers who have a track record of often switching jobs. Although borrowers who are aware of my cibil score know that switching jobs frequently in the hopes of improving their careers and increasing their income can be good for their finances, the lenders view this as a signal of an unpredictable career path on the borrower’s part. Because of this, most lenders view these types of borrowers as having lower creditworthiness, particularly when it comes to unsecured loans and loans with medium- to long-term terms, such as mortgages or vehicle loans, which need a greater level of commitment from the borrower.
For example, in order to make a loan available to a borrower, a lender can stipulate that the borrower must have been continuously employed by the same employer for the previous three years. Because of this, a significant number of applicants for personal loans who have a history of often switching jobs frequently have their loan requests turned down.
Credit report errors- If there are mistakes on your credit record, it could hurt your chances of getting approved for a personal loan. Incorrect reporting of payments cancelled accounts that are still shown open, and other types of problems could fall under this category. The applications for personal loans submitted by a great number of borrowers are turned down for reasons of mistakes discovered in the credit report, which the borrower failed to notice.
Additionally, this kind of inaccuracy could be a signal of identity theft or fraud, which has dropped your score to a mark lower than the minimum cibil score required for a personal loan. It is recommended that you check and examine your credit report on a regular basis so that you may identify any problems in a timely manner and get them corrected before they hurt your chances of getting approved for a loan. This will help you avoid getting such rejections.
Improper documentation- The applicant did not provide sufficient documentation, which is another common reason for the denial of a personal loan application. For a loan application to be processed and approved, complete and accurate documentation is required. During the application process for the loan, if you fail to present the appropriate documentation, your loan request will undoubtedly be denied.
Before you send in your application to the chosen lender, you need to make sure that you have all of the necessary documents that are specified by the requirements of the lender. Having the necessary papers and being aware of my cibil score not only makes the procedure simpler but also improves your chances of having your loan application accepted.