5 Reasons Why your Personal Loan Application May Get Rejected

31 August, 2018

It is a tough hit to take when you need emergency credit and your personal loan application gets rejected. Since most banks and NBFCs have internal policy parameters for granting personal credit, there are a few things that you need to keep in mind when applying for a personal loan online.

Today, we are sharing a list of things that you should set in order before applying for a personal loan so that your loan application will not get rejected.

Your Credit History

If you have defaulted on previous personal loan repayments, it will reflect in your Credit Report. Lenders do not like to give loans to people with bad to average credit history. Similarly, consistently overutilizing credit card limits is also considered a marker of risky financial behavior and discourages banks and NBFCs from giving you a loan.

In India, CIBIL keeps a credit record of individuals and ascertains a credit score based on their active credit and financial status. The score is given out of a total of 900 points and a score below 750 generally attracts closer financial scrutiny from the lenders.

Too Many Active Loans

A bank or NBFC will reject your loan application if you have too many active loans. The banks generally offer loans to people who have at least 40-50% of their income free from debt. Which means if you are already utilizing over 50% of your monthly income to repay existing debt and personal expenses, the bank will not risk giving you further credit.

Minimum Income Requirements

Speaking of income, the banks and NBFCs also require you to have a minimum monthly income to be eligible for a personal loan. Because, if the loan amount you have requested is way higher than your monthly salary, the EMI amount will also become higher than your salary. Similarly, if you are earning just enough to meet the EMI commitments, a lender will reject your loan application, considering you fixed monthly expenses.

Too Many Hard Inquiries

When you apply for a personal loan, the bank or NBFC sends an inquiry to the credit score keeping agency — CIBIL in this case. This inquiry is called a ‘hard inquiry’ and with every new request your credit score comes reduces by a few points. That is why it is not recommended to start multiple loan applications at once. First, it may bring down you credit score below the accepted threshold and second, the lender may consider your application as a desperate case with high-risk, thus denying a loan.

Mode of Employment

Finally, the lenders also ask you about your job profile, industry and experience to ascertain the stability of your job. If you do not have the required minimum experience in your job or if your source of income is not stable then your loan application may get rejected.

Most lenders only offer loans for salaried employees with salary accounts to avoid risk of default. Similarly, a lender may reject your loan application if you are working in an uncategorized or CAT C company.

How to get a personal loan when your application is rejected by banks?

Today, there are several options available for personal loan seekers in the market. Online peer to peer financing platforms like Monexo not only offers personal loans for low credit score profiles but also provides them faster than banks and NBFCs. Moreover, you can rebuild your credit score with a P2P personal loan while taking care of your immediate financial requirements at the same time.

To know how P2P lending works, you can read our detailed post here. To apply for a personal loan with Monexo, visit us at https://www.monexo.co/in/members/register/borrower