The majority of life’s problems can be solved with money, but there are times when we may need more money than we currently have. People can borrow money from banks and non-bank financial institutions (NBFCs) in such circumstances. Personal Loans are the simplest ways to obtain short-term financing for travel, marriage, home improvement, or other emergencies. When it comes to loan applications, though, some people are turned down. To prevent such situations, review the following common reasons why your Personal Loan application might be denied:
Checking your CIBIL score
Lenders usually have a credit score below which they would not lend. Banks usually check a CIBIL score of 650 or higher to approve a personal loan. Given recent credit tightening resulting from the pandemic, this could rise by 20-30 points. The bank can reject your application if your score falls below this level. NBFCs, on average, demand a lower credit score than banks.
If you don’t have any credit background, the lender won’t assess your spending habits. If you approach a lender with no background – no savings or salary accounts or deposits – they can refuse your loan application. If you don’t have any credit history and need a stable personal loan, a loan against a fixed deposit may be a better option.
Checks for earnings
Lenders will not lend if the borrower’s income falls below a certain level. This amount is usually set at about 20,000-30,000 per month. If your loan is for a larger amount, the income thresholds will be higher, and if your income does not meet the minimum income threshold, your application will be rejected.
If your Fixed Obligations to Income Ratio (FOIR) is high, lenders will reject your loan even if you have a high income. FOIR takes into account all of a borrower’s fixed monthly liabilities, such as house rent, current debts such as credit card bills, and EMIs on other loans, and so on. Your FOIR should be as poor as possible. It means you have enough money to pay back your loan. Lenders will usually refuse to lend if your FOIR is greater than 40%.
Aside from that, lenders would look for consistent jobs and income records, as well as age, ethnicity, and other variables. Even a person’s educational background can have an impact on loan approval.
Inaccuracies in your application, especially in your name, age, address, and other personal details, make it difficult for the bank to produce the required information about you, resulting in the application being rejected.
Checking your CIBIL score is without a doubt the most critical factor that banks consider when determining whether or not to offer personal loans. Before making a final decision to lend, banks weigh other factors such as education history, work longevity, age, and residence stability. Paying your bills on time, maintaining a decent credit score, and submitting your loan application with consideration will all help you get a personal loan.
If you are considering applying for a loan, Personal Loan, which is available on Finserv MARKETS, is a great option. It has a flexible repayment period, great offers, low interest rates, and top-up options. Finserv MARKETS’ entire application and approval process is easy, fast, and can be completed entirely online.