You need to borrow funds and have identified that a personal loan is the best way to go about it. So, you fill out the loan application, hit submit, and then you get the bad news. Your application has been denied, and you wonder why!
If you have been rejected for a loan, it could be that you applied for the loan without proper deliberation. Lenders have different personal loan eligibility criteria that they carefully assess when you apply. Therefore, several factors can lead to the rejection of a personal loan application. So, the next time you apply for a loan, note these factors related to the eligibility criteria to ensure that your loan application is approved successfully.
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Higher Debt-To-Income Ratio
The debt-to-income ratio compares your monthly debt payments to your monthly income and is used to assess your financial capacity to repay a loan. If your debt-to-income ratio is too high, it can affect personal loan eligibility, and you may not be approved for a loan. It is advised that your monthly debt obligation should not exceed 50% of your monthly income, even when you fall in the high-income range.
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Multiple Loan Enquiries And Applications
Multiple loan applications can affect your credit score and reduce your chances of getting a personal loan. This is because each time you apply for a personal loan, the lending institution enquires about your credit report from the credit bureau to evaluate your credit score. Lenders consider multiple credit inquiries as a sign of high credit risk and may choose to reject your loan application. Thus, it is advisable to compare different lenders and their interest rates thoroughly and choose one instead of applying with multiple lenders at once.
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Poor Credit Score
If you have a poor credit score, you may be considered a high-risk borrower and may be charged a higher personal loan interest rate or denied a loan altogether. Additionally, if you are unemployed, you may not have the regular income needed to qualify for a loan. So, try to improve your credit score by paying your bills on time and maintaining a good credit history before applying for a loan. Also, frequently check your credit report for errors related to the latest balance, credit behaviour, incorrect outstanding amount, etc.
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Incorrect/Missing Document(S)
One of the most common reasons for loan rejection is incorrect or missing documentation. Lenders sanction loans after verifying your documents, and if a document is missing or there is a discrepancy in your documents, your loan application can be delayed or rejected. Your details in the loan application, such as your name, income, age, and employment status, help lenders determine whether you qualify or not.
Thus, always provide the right set of documents with accurate details for successful approval. Go through your application twice before you submit it and upload all supporting documentation. You can also call the lender directly to ask for all the documents beforehand to get an instant personal loan approval.
Closing Thoughts
While an instant personal loan is more easily accessible than most other types of loans, it’s essential that you focus on meeting its eligibility criteria. Consider the above-mentioned factors and work on them to increase your eligibility for a personal loan and ensure a fast loan approval process.