By When applying for a personal loan, there is a risk of rejection looming over the borrower. With the wide range of personal loan offers from top lenders, selecting the right option may be challenging. You can easily compare them on a popular marketplace, such as Bajaj Markets.
Despite researching thoroughly and choosing an offer after assessing the eligibility criteria, there are many factors that can contribute to the rejection of your application. Most of these factors are under your control, giving you the opportunity to fix any errors beforehand. Knowing all these factors may help you get approval quickly.
Reasons for Personal Loan Rejection
Note these common reasons and try avoiding them when you apply for credit.
Insufficient Credit Score
When applying for an unsecured loan, the first thing the lenders do is check your credit score. If you do not meet their required eligibility limit, your application will not be processed. Even if you have a good income and all the required documents, you cannot get approval without a good credit score.
A good credit score indicates that you have the capacity to manage loan repayments without defaulting, making it a crucial criterion for loan approval. With 900 being the highest possible score, most lenders require a score of 750 or above for approval. Generally, the higher your score, the better your chances of getting approved.
Lack of Credit History
Although credit history is a part of the credit scoring process, lenders also check this to understand your experience of managing credit. If you have a mixed bag of credit, this shows them you are adept at handling various forms of credit.
In addition to this, they also check if you have any defaults in your track record. If you have unpaid credit card bills or missed EMIs, then your chances of getting approval lower slightly.
Incorrect Documentation
Applying with incomplete or outdated documents creates a discrepancy in verification. While some lenders may communicate and ask you to submit proper documents, others may reject your application. Ensure that you have all the required documents available before sending the application.
The most common documents required are:
- Proof of identificationÂ
- Proof of address
- Proof of employment
- Proof of income
As a healthy practice, checking the required list on the lender’s website is ideal.
Age Restriction
Most lenders have specific age restrictions for loan applicants. Generally, you must be at least 21 years old to apply for a loan. Conversely, lenders are often hesitant to approve loans for individuals over 60 years of age.
The primary concern is that individuals under 21 may lack a stable income, while those over 60 may face income stability issues, increasing the risk for lenders. As a result, if you are under 21 or over 60, you may encounter challenges in securing a loan.
Frequent Applications
Often, people opt for a loan to meet their urgent financial requirements. There may be a tendency for you to submit multiple applications to get approval from multiple lenders. This way, you may feel that you can choose an offer with favourable loan terms.
However, this often backfires as frequent loan applications can directly impact your credit score. Whenever a lender checks your credit score, it is called a hard enquiry. With every hard enquiry, your score takes a temporary hit. Multiple such inquiries can lower your score significantly, damaging your chances of getting approval.
Existing Debts and Income
Another factor lenders consider before giving you a loan is your existing debt-to-income ratio. According to this, your existing repayment should not exceed more than 30% of your income amount.
In case you have high debt, it shows dependence on external funding to manage your finances. Such applicants can raise red flags, as they have higher chances of defaulting. Therefore, lenders also require you to meet the minimum income criteria before approving your application.
Unstable Employment
Frequent job changes and gaps in employment history are other reasons for getting rejections on your loan. This is because it shows that you have inconsistent income flow. Furthermore, if you work with an unlicensed or unregistered company, this is also a reason for your application getting rejected.
Tips to Improve Your Chances of Approval
Here are a few points that will help you get approval without hassle.
- Improve your credit score over 750 before applying for a personal loanÂ
- Reduce your debt-to-income ratio by paying your credit card bill or closing your loanÂ
- Check the complete list of required documents on the official lender’s websiteÂ
- Check the eligibility criteria to ensure you fit the requirementÂ
- Review your credit report and fix the inaccuraciesÂ
- Apply with a co-borrower having a good credit score
- Consider demonstrating a higher income or requesting a raise from your employer
- Avoid applying for loans too frequently in a short durationÂ
- Wait at least three months before applying after a rejection
With all these points in mind, you can effectively enhance your eligibility and chances of getting swift approval. You can always check the eligibility criteria and documents required for a personal loan on Bajaj Markets or the lender’s website.Â
This way, you can stay prepared for the application process. Once you receive the disbursed funds, you can use them for any planned and unplanned requirements without any restrictions.
