When you are rejected for a loan application, it might be difficult to not take it personally. However, if your loan application was turned down even after having a good salary, it’s critical to understand why. Once you understand what made the lender reject your loan application, you can accordingly take action to increase your chances when you apply for a loan application the next time.
Frequently Borrowing Credit: Even if you have a high CIBIL score and fall in their CIBIL score range, borrowing frequently can lead to loan denial. It can lead banks and other financial organizations to question your ability to make repayments. Lenders will question your dependence on credit, making you a risky applicant even if you pay back several loan EMIs and/or credit amounts on time. Furthermore, they won’t be eager to extend you a new loan since they think it will put too much pressure on you and lead to missing or delayed credit repayment.
Reports from CIBIL: Another factor behind the rejection of your loan approval is the remarks included in the CIBIL report. The comments may ask for a reduced interest rate, mention paying EMIs after the due date, and other things. Any note in the report reveals the applicant’s careless conduct or poor repayment practices. Because lenders analyse the applicant’s credit record before extending a loan or credit, it is strongly encouraged not to dismiss the comments in a CIBIL report. By now, one must understand the value of what is CIBIL score. A person should make an effort to get the comments removed by settling with the creditors or fully repaying the obligations.
Salary or career instability: If your work or salary is not stable or your company is on the bank’s blacklist, your loan application may still be turned down. Additionally, if you relocate for employment or change jobs too frequently, it will reflect negatively on your credit report and slow down the loan approval process. Lenders and other financial organizations are wary of applicants who exhibit unstable nature.
Tax payment history: Irregular tax payment apart from not falling within the CIBIL score range is another reason for a bank to reject your loan application. A person is more likely to have their loan application denied if they haven’t filed their income tax returns on time in the previous two years.
History of rejected loan applications: All loan applicants that have previously been declined or authorized are noted on your credit report. Lenders always review your credit report to see your credit history whenever you apply for a new loan apart from looking at your CIBIL score range . Your new loan application request can also be denied if you’ve previously been denied for loans. As a result, you ought to wait to apply for a new loan until all of your prior ones have been repaid.
Poor Co-Applicant CIBIL Record: By now you must understand the value of what is CIBIL score and what it can do to your loan application. If you are asking for a joint loan, the co-applicants credit history is also taken into account. The likelihood that your loan application will be denied is significant if your co-applicant has a poor CIBIL score. Therefore, it is suggested to review the co-applicants report prior to making a loan application and if it is low then it is imperative that you tell them the importance of what is CIBIL score so that they can make
Unbalanced Secured & Unsecured Loans: One should know what is CIBIL score and how they can maintain a healthy balance of unsecured and secured loans to keep their credit score high. Lenders will view you as a borrower with credit-based debt if you are unable to keep a balance between secured and unsecured loans, which could lead to the rejection of your loan application.
Multiple Hard Inquiries: To examine someone’s credit score or credit report, a soft inquiry is conducted. Your credit score range is unaffected by these inquiries. On the other hand, a hard inquiry is when a lender obtains a copy of your credit report to check your credit history. Lenders who frequently make hard inquiries may reject your loan application since it seems that you have applied for a loan more than once. It is preferable to wait a while before making a new loan application in order to prevent hard queries.
Financial Information: Another factor that contributes to the denial of a loan application is the failure to provide accurate financial information. Even if you have a great credit score and know what is CIBIL score, lenders will always analyze your financial summary, and if there are any errors, your loan application may be rejected.
Inability to confirm information: If the bank or financial institution is unable to verify your information—such as your income, address, employment documentation, etc.—they may also reject your loan application.
Candidate’s Age: If the applicant is close to retirement age, his or her loan application can be turned down. Due to the likelihood of having no ability to repay the debts, lenders, banks, and other financial organizations are reluctant to issue loans to such individuals. As a result, the age of the applicant has a big impact on whether or not their loan application will be approved.
You had an excessive debt-to-income ratio: A DTI ratio that is too high can be another issue you have. This ratio evaluates your total monthly debt to your gross monthly income. Your DTI ratio would be 60%, for instance, if your monthly debt payments are Rs 30,000 and your monthly income is Rs 50,000. A high ratio like this could indicate to lenders that you might find it difficult to pay back your debt. Because of this, it is recommended to strive for a DTI ratio of 35% or below, which is generally seen as favourable. You’d have a better chance of getting the loan approved that way.
Low credit scores, high debt-to-income ratios, and insufficient income are a few major causes of loan denials. Understanding these potential reasons that got your loan application rejected and what to do about it if you need a loan can help you ensure it doesn’t get rejected again.