How to Avoid the Rejection of Your Personal Loan Application

Feb 18, 2020

Personal loan eligibility criteria vary between lenders. To avoid rejection, make sure that you understand various personal loan rejection reasons. Also, ensure that you do not present a negative profile for a personal loan while staying true in the application form.

 

You would typically apply for personal loan when you have an immediate expense to cover. Any delay can be frustrating. Therefore, you must ensure that you do not present a negative profile for a personal loan to your lenders. One way to make sure of this is to be aware of various personal loan rejection reasons. Here are a few tips to help you ensure that your loan application is accepted.

Maintain a healthy FOIR

FOIR or fixed obligation to income ratio is the most important factor that a lender uses to measure your repayment capability. Fixed obligations include any rent that you pay, any outstanding EMIs, regular payments you make towards investment and insurance products, and the average monthly expenses for maintaining your current lifestyle. Ensure that your fixed obligations make up less than 40% of your monthly income. While the exact ratio that lenders use as a cut-off varies, it is typically between 40% and 50%.

Make timely repayments towards all outstanding debts

Before giving you a loan, the lender will check your credit history as reflected in your credit score. To maintain a healthy credit history you just have to make sure that you service all your debts on time. This includes not just EMIs towards a loan you may have taken, but also credit card payments, overdraft repayment, and any "pay later" accounts you may have. Most lenders may not provide a personal loan for low CIBIL score. Even for those with a low to medium score, the higher interest rate charged makes it costlier. It is better instead, to maintain a CIBIL score of over 750.

Must Read: How to Check CIBIL Score for Personal Loan?

Keep credit utilization ratio low

Other than credit rating, the lenders also look at your credit utilization ratio before approving personal loan applications. The credit utilization ratio is the ratio between the amounts of credit you have taken to the credit available to you. As a rule of thumb, you should keep this under 30% before applying for a personal loan. Your personal loan application may be rejected if your credit utilization ratio is consistently high.

Avoid misrepresentation in the loan application

One of the silliest and most common personal loan rejection reasons is a mistake in the application form. Remember that most lenders hire third-party agencies to verify your applications. If they uncover a misrepresentation, the loan application would be summarily rejected. Therefore, make sure that you check the loan application yourself and do not make any mistakes in the form.

Must Read: How to Calculate Personal Loan EMI?

Avoid taking on multiple loans

Remember that lenders only tend to lend to individuals who can manage their finances well. If you have taken on multiple loans, lenders may take it as a sign that you are unable to manage the funds well and refuse to lend any further. One of the reasons for this is that multiple loans eat into your available credit and makes it difficult to raise additional debts.

Avoid frequent job switches

Banks and other lenders like to see that you have a stable source of income before they lend you any money. Therefore, if you have switched too many jobs over a short period of time – they may consider you to have a negative profile for a personal loan. Many lenders require that you hold on to a job for at least three years before applying for a personal loan. Remember that the personal loan eligibility varies from one lender to the other. Make sure that you talk directly to the lender and understand their criteria before you apply for a loan. At the minimum, make sure that you meet their:

  1. Credit rating requirement
  2. Minimum income requirement
  3. Employment requirement
  4. Have sufficient collateral, if required
  5. Apply for a loan purpose they accept
  6. Fill in the correct details in the application form

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