Seeking a personal loan with a poor credit score is a huge problem. That is one the most important factors when it comes to qualifying for a loan. So if your loan has been rejected, try to understand why, so you can apply properly the next time.
Low Credit Score
As mentioned, it is one of the most obvious reasons why your loan application is rejected. Credit score reflects your creditworthiness, and if it is below a certain threshold, it means the lender won’t give you the loan. Applicants with no credit score might also face rejection as without credit history, your lender has no way to assess your financial situation. Those with poor credit can approach NBFCs (Non-Banking Financial Company) for loans, as they have a lower credit score requirement thank banks. But keep in mind they levy a much higher rate of interest on personal loans.
Multiple Loan Enquiries and Applications
Remember that every time you apply for a personal loan, the bank initiates an inquiry for your credit report with the Credit Bureau to check your credit score. These are considered to be “hard inquiries”, which are mentioned in your credit report, and lead to a negative impact on credit score. It makes you seem credit hungry and in desperate need of finances, so your financial credibility starts to look questionable.
Higher Existing Debts
Another reason for personal loan rejection is when your prevailing debts are on a higher side. At present, if you have too many open credit accounts, such as credit cards and loans, the prospective lender will consider you are overburdened with credit and could end up in default. High debts make you more of a risk. At times, borrowers intentionally minimize their existing debt repayments to get a higher loan amount. But lenders refer to your credit reports before approving the loan amount, including existing debt obligations. This sort of misinformation can lead to rejection of personal loan application.
Unfulfilled Income Criteria
Before giving out a personal loan, lenders want to be certain of getting it back on time. To ensure timely repayment, they check the applicant’s income. Sufficient and stable income shows that you will be able to repay all your EMIs on time. Most lenders have defined a minimum income requirement for salaried and self-employed individuals. If you apply for a loan that is more than your eligibility, the application might get rejected.
Unstable Employment History
Lenders always prefer to grant loans to people working in reputed organizations. So if you work for a company that is not-listed or unregistered, your application could get rejected. Moreover, most banks offer personal loans to people with a stable history of employment. If you don’t have a steady job or a habit of quitting jobs multiple times, there are high chances of your personal loan application getting rejected. People changing jobs at frequent duration are considered less worthy by lenders to get loan approvals.
The best way to ensure your loan application doesn’t get rejected is to first work on improving your credit score, and then re-apply. It considerably lowers the risk of your application being rejected yet again.