The unsecured nature of personal loans makes lenders cautious about approving the loan applications received by them. While processing the application for a personal loan, lending agencies ensure that the applicant has the capacity and the willingness to repay the borrowed amount. This is done by checking the applicant’s financial status, stability of his income, and his creditworthiness. The CIBIL score of the applicant is an important parameter indicating his ability and track record of repaying his dues and borrowings.
Let us look at some of the factors that can disqualify you from getting a personal loan.
- A Low Credit Score– The CIBIL Score or your credit score is the main factor considered by banks and other lending agencies offering personal loans. The score is based on the number of loans taken by you, your repayment track record, and even the number of loan applications submitted by them. A low credit score is indicative of poor creditworthiness and is not viewed favourably by the lenders while a good credit score of above 700 is perceived well and makes you eligible for quick sanctioning of the personal loan. The low score may be due to delays in repayment of the EMIs on your previous loans or on account of you submitting loan applications to multiple lenders. Each lender does a hard inquiry thereby lowering your credit score. When you apply for a personal loan, ensure that your CIBIL score is above 700. A lower score may still get you a loan but at a much higher interest.
- Your Employment Status– Stability of job or income is an important factor for getting an unsecured loan. Banks lend to applicants who have a regular and steady source of income and so can repay the borrowed amount. However, if you have a history of frequent job changes, your application may not be viewed favourably by the lender. So, it is better to apply for a personal loan only after you have stuck to a job for two to three years.
- Submission of Incorrect or Fraudulent Documents– The application form for a personal loan should be filled in carefully with the correct information. Also, documents supporting your age, identity, and income proof should be genuine. All lending agencies get your application verified to ensure that there is no misrepresentation or deliberate hiding of facts or submission of incorrect documents. If your application has been rejected despite you meeting all the eligibility conditions, do check the documents submitted by you and the information provided to the bank for any kind of mistakes.
In addition to these factors that can lead to the rejection of your personal loan application, applying for a loan amount that is more than what you can afford to pay back is not viewed favourably by lenders. To avoid such a situation, you can use a personal loan calculator to find out how much loan you are eligible to apply for. Another way to avoid rejection of your loan application is to get prequalified with lenders. This process involves lenders checking your eligibility to apply for a personal loan while conducting a soft credit inquiry that has no impact on your credit score.