When in need of emergency credit, the last thing you want is to be rejected by banks and NBFCs for a personal loan. In order to be prepared for such situations, your financial record should be maintained in a way that lenders do not consider it a risk to loan you the amount you desire.
In order to avoid such rejections find out what can be the most common reasons for personal loan rejection by lenders.
Poor Credit History
Banks do not only refer to what you state in your application form, but do a thorough check of your financials status to assess your repayment capacity. While credit history can be ascertained in various ways, credit score is a popular assessment benchmark for lender. A low credit score with poor repayment track record and overutilization of credit limits can cause your loan to be rejected.
If you're already in a lot of debt like holding several loans, then lenders will need to check whether your income is sufficient to support the new loan repayments. Your debt to income ratio is very important to lenders. In cases where they feel they cannot risk by giving you further credit, your loan application may get rejected.
You income proofs will help lenders decide whether you, as a borrower, will be able to uphold your financial obligation. If your income isn't enough to accommodate the monthly EMIs attached to the loan, then your chances of getting a loan are low. Lenders generally have a minimum income requirement and only if you meet this requirement, will your application be considered.
Too Many Applications
Lenders may want to access your credit score and credit report each time you apply for a loan. These can be considered as 'hard inquiry'. So, the more number of applications that you make, the more will be the number of hard inquiries, thus bringing down your credit score and your chances of securing a loan.
Lenders can be meticulous about the stability of your job or source of income if you are self-employed. Quite a number of lenders insist on a stable job, otherwise they may reject your loan.
(Adhil Shetty is CEO of Bankbazaar.com)
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