Personal loans are unsecured forms of credit taken for small and big ticket expenses. Individuals use personal loans to meet daily needs, home renovation costs, wedding expenses, and medical emergencies. It is, without a doubt, one of the best ways to obtain immediate funds in your credit account.
However, personal loan apply forms are rejected for various reasons. Here are some of the most common reasons for personal loan rejection and the ways to avoid them.
A low credit score can reject personal loan applications
Personal loans are completely flexible and unsecured forms of loans for small and big-ticket expenses. It is a great financial solution for individuals to meet instant requirements and emergencies.
However, it is very common for an instant personal loan online to get rejected just because of a low credit score. A credit score is a 3 digit number that represents an individual’s entire financial journey and credit health.
The credit score is decided on the basis of past loan repayment, credit utilization, payment, credit account and credit mix. Therefore, if an individual does not have a good credit score, it signifies that they have not taken borrowing and credit activities on a serious note.
This is considered by the loan providers before approving or denying the loan application.
On the other hand, a person with a good credit score gets loans approved because of their creditworthiness.
The credit score is one of the most important factors in determining creditworthiness and assisting loan providers in making approval decisions.
This could be the foremost reason why personal loan applications are often rejected.
Personal loan applications with low income may be denied
Income is directly related to the measure of risk involved in borrowing and repayment. If an individual does not earn enough, it becomes difficult for him or her to manage expenses along with monthly installments.
Under these circumstances, individuals often end up defaulting on or missing monthly instalment payments. Therefore, loan providers always prioritise the income of individuals before approving their personal loan applications.
Individuals with low income frequently have their personal loan applications denied. Since personal loans are unsecured, there is no security attached to the borrowing experience.
Therefore, it becomes very important to have a handsome salary in order to get personal loan approval. Individuals with a low salary often find their personal loans rejected by banks and non-banking financial institutions.
The debt-to-income ratio is important for personal loan applications
Do you have multiple existing loans? If so, your debt to income ratio will be very high. With existing loans, you will never get a personal loan application accepted by financial institutions.
Too many loans at a single time makes it a burden on the individual. Therefore, it is essential to pay off existing loans before taking out a new personal loan. The ideal debt-to-income ratio is below 30%, which is accepted by the financial institutions for personal loan approval.
If you end up paying 50% of your income already for existing loans, your personal loan application will be immediately rejected. This is a very common reason why personal loan applications are rejected in the country.
Incomplete application process
The application process for a personal loan is very important. Whether you’re applying in an offline or online mode, it is very important to consider and complete the entire application process. An incomplete application form will be rejected straightaway.
The application form has various important details and information that is required by the financial institutions to run and validate the background check of the individual. With insufficient information and details, the background verification will not be successful.
If the loan providers are unable to run a further verification process because of an incomplete application, the personal loan gets rejected straight away.
Incomplete documentation
Documentation is very important for personal loan approval. It is very important to produce the complete list of documentation as required by the loan providers.
Documents related to personal, business, employment, and various other factors need to be produced at the time of application. If an individual is not able to provide all the required list of documents, the personal loan application gets rejected straight away.
High credit utilisation ratio
A high credit utilisation ratio straightaway leads to a personal loan getting rejected. If you have completely over utilised your existing loan or credit cards, loan providers will not approve a personal loan request.
Overutilization of credit limits is not a good sign of financial stability. Therefore, if any individual has a past history of high credit utilisation, it negatively impacts your personal loan application.
The history of bankruptcy
If you have any history of bankruptcy in the past, loan providers will straight away reject your personal loan application. It has become difficult for traditional banks to trust individuals with bankruptcy in the past.
However, things have changed for non-banking companies that provide generous borrowing terms.
Conclusion:
If you want a smooth personal loan apply process, take an instant personal loan online from NBFCs like Clix Capital, Bajaj Finserve Etc. By meeting the eligibility criteria, it is easy to get a low personal loan interest rate.
