Personal loans can be used for various reasons; loans are taken not only to make dreams come true but often to make ends meet. Therefore, having your loan application rejected could leave you frustrated and out of options. So before you go to another bank to apply for a loan, take the time to analyze why your personal loan application was rejected. Here are a few personal loan rejection reasons that you should be aware of-
Every lender is going to check your debt to income ratio before sanctioning your loan. If you have availed multiple loans in the past which you are still repaying then there is a chance that your personal loan application might be rejected. If you are spending about 40% of your income or more on repaying existing loans you can almost be certain that your loan application will be rejected. You should pay off some of your debts first as a high debt to income ratio is sure to raise a red flag.
Every bank has a minimum income requirement and if your income is below that number your personal loan application will be rejected. Each lender has a different minimum monthly income cap so make sure your income is above this requirement before submitting your personal loan application. A sufficient income is an indicator that you have enough funds to repay the loan and so the minimum income requirement is one of the major factors taken into consideration by any lender. You can call the bank directly to make an inquiry on the bank’ threshold amount, visit their website or compare loan providers on the IndiaLends website or app.
Your credit history is the most important factor that is taken into consideration when analyzing your loan applications. Each lender has a minimum credit score that you need to have in order to qualify for a loan.
Credit card defaults, late payments, or defaulting on monthly payments of loans and so on will reflect badly on your credit report. A rejected loan application also has a negative impact on your credit score. Before you apply for a loan find out where your credit stands and the minimum credit required to apply for a personal loan. Do not apply if your credit score doesn’t meet lender’s minimum credit as you might be rejected outright.
Financial institutions lend money to those who they think would be able to repay the loan. A stable job means a stable income, making the applicant a lot more trustworthy than a person who is likely to quit his job before he has repaid the loan. Most banks only lend you money if you have been in your current job for more than six months.
Your employer also comes under the scanner when you apply for a loan. If you are working in a private company that is not in the bank’s list of preferred companies, then your loan application can be rejected.
You might have sent out loan applications to different banks. Maybe in the hope of increasing your chances of your loan being sanctioned but this strategy might work against you. Each time you apply for a loan, a hard inquiry is made which is recorded in your credit report. Financial institutions identify candidates who apply for multiple loans as risky candidates and do not sanction loans to such candidates. Avoid applying for multiple loans and research on loans that you are eligible for and are capable of repaying before applying for a loan.
Make sure you double check the details on your loan application because a mistake on your application may result in rejection. To apply for a personal loan you would need to provide documents on your work history and source of income. If you fail to provide such information, you run the risk of having your application rejected. Even if you are self-employed and taking a personal loan for business you would have to provide supporting documents. This is done to prove you have a regular source of income.
So, How Long Does a Declined Loan Remain on your Credit File?
Actually, credit reports do not track if your loan application is rejected. Only the inquiry from the lender is accounted for in the report. These hard inquiries will be taken off your record in 2 years. Also, it can only impact your score for one year. If your loan application is approved, then a new account is added to your credit report. And the payments will be tracked.
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