Blogs > Common Mistakes That Can Get Your Personal Loan Application Rejected
Common Mistakes That Can Get Your Personal Loan Application Rejected
Imagine you are in your early 30s, with a decent salary and a stable job in a reputed MNC. You are expecting your first child. You suddenly realize that you need money to renovate your home to make space for welcoming a new member to the family. Since you had recently utilized a large portion of your savings to make some investments, you need a personal loan to finance the renovation.
So, you decided to apply for an online personal loan for the first time. A week later, you learn that your loan application has been rejected, leaving you with a big question mark.
Why did your personal loan application get rejected?
You have a word with some credit advisors to understand why your application got rejected. A realization hits you: you made some mistakes when applying. You didn’t check your credit score or use a personal loan calculator to check your loan affordability before applying. What’s more, now that you have been rejected once, it’s going to be more difficult for you to get a personal loan.
Here are some common mistakes borrowers make while applying for personal loans or credit cards:
-
You apply for a much higher loan amount than you can afford:
Banks generally reject applications from applicants who have applied for a loan amount that they cannot afford to repay. It is wise to calculate your loan affordability before applying.
-
You have a low Credit Score:
Banks generally reject all applications that have a low Credit Score. A Credit Score is a three-digit number that indicates your creditworthiness. It is, therefore considered the most important parameter you should check before applying for a loan. Borrowers with high credit scores can benefit from negotiating their interest rates. Whereas borrowers with low credit scores face the risk of having their loan applications rejected. So, ensure that you check your free credit score before you apply.
-
You were a loan guarantor to a defaulter:
You might have been a guarantor to a loan applicant in the past who defaulted on paying back. As a result, your own creditworthiness reduces in the eyes of financial institutions.
-
You apply with a co-applicant with a Poor Credit Score:
If you have a co-applicant, it might be possible that he has a poor credit history. Because of this your loan application can get rejected. So, you should ask your co-applicant to check his/her credit score before applying.
-
You have a history of switching jobs:
You may also face rejection on a loan application if you have a history of switching jobs too frequently. Banks generally offer loans to stable employed individuals with a static income flow. Constant job hopping makes you prone to a risk of unemployment. Hence, your profile becomes riskier.
-
You have paid inadequate taxes in the past:
If you haven’t been paying tax in the recent past or if there is little information about your tax paying behaviour, financial institutions may find your profile to be unreliable and risky to lend to.
-
You have missed EMI payments in the past:
A lot of loan applicants get their loan applications rejected despite having a high credit score. That’s because they have missed payments or defaulted on loans in the past. This could be true even if that past is as old as four years and you have been regular ever since.
Remember:
Credit awareness in India is extremely low – only 1 out of 10 borrowers in India knows what a credit score is and checks it regularly. As a result, the average Indian borrower is susceptible to making mistakes while applying for a personal loan or a credit card and can easily end up either getting his/her personal loan application rejected or at a higher interest rate than what they deserve.
All borrowers should focus on building a good credit score and should check their eligibility (using a personal loan calculator or EMI calculator) before applying to maximize their chances of getting an approval.
