Top 5 Reasons for Rejection of Personal Loan Online

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Written By PARUL YADAV

Applying for a Personal Loan without careful consideration can lead to rejection of the loan application. The next time you apply for a loan, keep in mind the potential reasons why your application can be denied. Here are some of the most common reasons for Personal Loans getting rejected. 

#1 Income Criteria Not Met

Lending institutions want to be sure an applicant will return the loan on time and won’t default before approving a Personal Loan; this is ensured by looking into the borrower’s steady income. A sufficient and reliable income demonstrates your ability to pay back all your EMIs on schedule. 

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Because salaried workers have a set income from a set source, they are more likely to be approved for a Personal Loan than self-employed individuals. Most lending institutions have established a minimum income criteria  for both paid and self-employed borrowers.

What can be done?

You should speak with your lending institutions before applying to avoid this. Once you know the common grounds for Personal Loan denial, you can steer clear of them. In addition, you can search for personal loan banks where your annual income is not the main factor. It is preferred to determine your loan qualifying amount according to your income to avoid rejections. Using a Personal Loan Eligibility Calculator can help.

#2 Multiple Loan Inquiry Applications

Online Personal Loan applications submitted too frequently to numerous lending institutions are not recommended. Each time you apply, the lending institution consults with the credit agencies to examine your credit report and credit score. Credit agencies classify these as hard inquiries, which lowers your credit score.

What can be done?

Submitting your loan application to only a few online lending institutions will help you avoid rejection.

#3 Poor Credit Score

Your creditworthiness is represented by a credit score ranging from 300 to 900, and this influences a lending institutions’ decision to approve the loan. These institutions have a minimum credit score requirement before approving a Personal Loan application. Therefore, your loan application will be denied due to the lack of credit history or if your credit score is below the required number. 

What can be done?

A credit score of 750 or higher is excellent for loan acceptance. Alternatively, since bank’s have less stringent credit standards than NBFCs do, you could turn to them for Personal Loans. NBFCs also charge more in interest for Personal Loans than banks.

Approach the lending institutions with whom you have a salary account or an established business relationship in this situation. Applying for a secured Personal Loan, such as a loan against a fixed deposit, is another excellent choice.

#4 High Current Debt

Your high level of existing debt is one of the reasons why a Personal Loan application is rejected. If you currently have a lot of open credit accounts, such as credit cards and loans, your possible lending institutions where you are asking for a Personal Loan will think you have a large credit burden and could end up in default. Your debt load may make you appear risky to the lending institutions, who may decide not to approve your loan.

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What can be done?

Make sure you only use credit cards and loans to the extent you can repay them as and when required. If you cannot repay your loans on time, refrain from taking further loans. Additionally, even if you’ve taken out several loans, maintain a spotless repayment history and ensure the ratio of secured to unsecured loans is maintained.

#5 Incorrect/ Missing Documents

The approval of your loan application won’t happen until all of your paperwork has been examined. Your loan application form is just as crucial as the other supporting documents you send. The information you provide on your application, such as your name, age, income, and address are critical to the lending institutions’ ability to gather the required data about you. Your lending institutions may reject your loan application if there are any missing documents or if there are errors in the information provided in your documentation.

What can be done?

Understand the Personal Loan procedure carefully and check the list of necessary documents in advance. While applying for a Personal Loan online, provide scanned copies of all relevant documentation. Submit original documents and all necessary copies when applying offline. Fill out your application form completely, careful not to overwrite any fields. Provide the required details accurately and without typos. Double-check the information you have provided before submission.

Conclusion

While a Personal Loan helps you meet financial hardships, rejection will be noted on your credit report and stop you from getting any further loans in the future. Therefore, comprehending the Personal Loan procedure and knowing the reasons why these loans get rejected is advisable. Keep in mind the aforementioned factors and you won’t find yourself falling short before applying for a Personal Loan.

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