4 Reasons Why The Bank May Reject Your Loan Request

You’ve recently applied for a personal loan at your bank, but it appears that your application is about to be rejected. Why did this happen? Banks may reject your application for 4 reasons:

1. Your credit score is low.

Every bank starts the loan process by checking the applicant’s CIBIL credit score. The credit score is calculated based on your age, income, repayment history, any defaults on past loans, etc. The higher the score out of 900, the more low risk applicant is considered. Score above 750 out of 900 is regarded as low risk candidates for all categories of loans. However, if your credit score is low, the bank may reject your loan request.

Fix it: If your bank rejects your request, approach a loan app with your instant loan application. The best loan apps compute credit scores based on their AI-backed algorithms for a more accurate summary of your credit. The chances of getting the loan are higher with the app.

2. You don’t have a stable source of income.

Your income is one of the determining factors for your loan request to be approved or rejected. Banks normally do not entertain personal loan applications from self-employed individuals, unless the applicant can prove a huge business turnover with stable revenues. Even then, the chances of approval are quite low. Banks favour individuals that have a salaried job and who can furnish salary slips showing a regular income.

Fix it: There is not much leeway on this point, so if you are not salaried with a steady flow of salary into your bank account every month, your application might not be approved by any bank or NBFC.

3. Your loan repayment history is suspect.

Your credit history also takes into account any past loan repayment defaults, or defaults on bill payments. Your financial transactions are tracked and recorded over the years, and any undesirable behaviours can lower your credit score dramatically. If the bank notices that you have been late in repaying past loans, or have been listed as a defaulter by utility companies or even other lenders, then your personal loan request may be rejected.

Fix it: Be prompt about all payments, whether they are bill payments or EMIs. A regular schedule of payments gives you a good credit score.

4. You have existing loans that eat into your income.

Banks also check whether you have any existing loans while you apply for the personal loan. If you do, it means that your current income is being split over EMIs for those loans, while you are attempting to add a new instant loan to the mix. Usually, it is recommended that your EMI spend should not exceed 50% of your take-home income.

Fix it: Pre-pay any existing loans before applying for the personal loan.

Conclusion

It helps to have a clean credit history before applying for the personal loan, and ensure a stable flow of salary over the last few months. We recommend approaching a loan app for faster processing and lower rejection rates.