Personal loan application refused? Know the possible reasons for rejection

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Updated March 30, 2021 | 05:59 IST

Only apply for a loan facility if you can’t live without it, as any unsecured personal loan will incur high interest charges

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Personal loan application refused? Know the possible reasons for rejection

New Delhi: A personal loan often comes to the urgent rescue of cash-strapped people, and its flexible nature allows borrowers to use the finance facility for any need.

Personal loans are readily available at competitive rates, which can provide you with a good deal. However, having a good credit rating improves the chances of loan application approval, but there are still other reasons that result in the application being rejected. Below are some do’s and don’ts to avoid loan application rejection-

  • Personal loans come with a minimum income and a minimum and maximum age that must be met in order to qualify for the facility. You will be well advised to read the offer documents carefully and apply for a loan only when you meet all the conditions.
  • Each borrower must submit a set of documents to apply for a personal loan, and the documentation requirement is different for salaried and self-employed applicants. Here is a list of the usual documents that need to be submitted when applying for a personal loan (note that this may vary slightly from bank to bank)
  • Your credit score plays a crucial role in determining not only whether your loan application will be approved or not, but also under what conditions the loan will be granted to you. Thus, a bad credit score can lead to a loan with unfavorable repayment conditions, such as a higher interest rate, or even an outright rejection.
  • While it makes sense to compare different options to find the best product, applying for multiple personal loans in quick succession can be very counterproductive. Banks will perceive this as a sign of desperation on the part of the borrower, which could lead to a rejection of the application and a lower credit rating.
  • In case of insufficient bank balance, lenders reject your loan application. When reviewing your loan application, lenders review your minimum net monthly income, income stability, and then sanction your loan accordingly.

So work to improve your credit score, carefully evaluate all options, but be sure to apply only to the institution that best suits your needs.

Also, don’t go for a personal loan just because you qualify or got a promotional call. Apply for a loan facility only if you cannot live without it, as any unsecured personal loan will incur high interest charges starting from 11% up to 24%.

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