Why is your loan getting rejected again and again? It is not necessary that the reason for this is always the CIBIL score, many times other reasons can also be the reason for loan rejection, which we do not pay attention to. Know about it here.

Sometimes children's education, sometimes home repair, sometimes sudden medical emergency... Many times in life we ​​suddenly need money. In such a situation, personal loan becomes a great support. But what happens when you apply for a personal loan with full hope and the bank rejects your application? If this happens again and again, then the disappointment increases.

Often people think that the loan is rejected only due to poor credit score, but this is not the truth. There are many small mistakes which we do not pay attention to and our loan application gets rejected. Let us tell you about those 5 big reasons-

1. Credit Score: Mirror of your financial horoscope

The first and most important thing is your credit score. It is a three-digit number that shows your habit of repaying loans. Personal loan is an unsecured loan, that is, the bank does not ask you to pledge anything for it. In such a situation, the bank relies only on your Credit Score to decide whether you will pay the EMI on time or not.

Why is it rejected?

If you have ever delayed paying a loan or credit card bill in the past, then your credit score gets spoiled. Banks often consider a score less than 750 as risky and reject your application due to low credit score.

What to do?

Always check your credit report before applying for a loan. If the score is low, then pay your bills on time to improve it.

2. Error in information: Small mistake, big loss

This is a very common mistake. While filling the loan application form, many times we fill some wrong information in a hurry or leave some column incomplete.

Why does it get rejected?

The bank matches the information given by you with your documents (PAN card, Aadhar card). If any difference is found in the spelling of the name, address, or the name of the company, then the bank can consider it a sign of fraud and immediately reject your application.

What to do?

Read the application form carefully twice before submitting it. Make sure that all the information matches your documents.

3. Job Instability

While giving you a loan, the bank wants to ensure that your source of income is stable so that you can pay the EMI every month. If you change jobs very frequently, then it is a red flag for the bank.

Why does it get rejected?

Job Instability sends a message to the bank that your income is not stable and in future you may default in repaying the loan. Usually, banks expect that you have been working in your current company for at least 1 year.

What to do?

If you are planning to take a loan, avoid changing jobs for some time. Show stability in your job.

4. Imbalance of income and debt (High Debt-to-Income Ratio)

The bank also looks at how much of your monthly income is already going into the ongoing EMI. This is called Debt-to-Income Ratio (DTI Ratio).

Why is it rejected?

If a large part of your income (usually more than 50%) is already going into paying the loan EMI, then the bank feels that you will not be able to bear the burden of another loan. High debt-to-income ratio is a major reason for loan rejection.

What to do?

Try to repay your small loans before applying for a new loan. This will improve your DTI ratio and increase the chances of getting a loan.

5. Applying for a loan at multiple places simultaneously

When we are in dire need of money, we apply for a loan at multiple banks and NBFCs at the same time. This habit can prove to be very harmful for you.

Why does it get rejected?

Whenever you apply for a loan, the bank checks your credit report, which is called a 'hard inquiry'. Every hard inquiry reduces your credit score a little. Seeing multiple inquiries at once, banks feel that you are desperate for money and there is a risk in giving you a loan.

What to do?

First do a thorough research, know the interest rates and terms of the banks and then apply only at one or two places where your chances of approval are the highest.

FAQs

1. When should you apply again after a loan is rejected?

Generally, you should wait for at least 3 to 6 months. In the meantime, work on correcting the reasons why your loan was rejected, such as improving your credit score or lowering the DTI ratio.

2. Does a loan application rejection lower my credit score?

Merely having an application rejected does not lower the score, but when the bank makes a 'hard inquiry' for your application, it may affect your score slightly.

3. What is considered a good credit score?

A credit score of 750 or above is considered very good. This increases your chances of getting a loan easily and at a low interest rate.

4. Can I get a loan if I have a low credit score?

Yes, some NBFCs (non-banking financial companies) offer loans even with low credit scores, but their interest rates are usually higher than banks. If you want, you can also try a secured loan like a gold loan or with a guarantor.