If you have an immediate requirement for cash taking a personal Loan is the most viable option. Unsecured personal loans do not require you to offer any collateral nor do they require you to explain the reason for taking the loan. The processing time involved in getting a personal loan is very less as compared to other types of loan. All this looks very attractive but it is not as easy as it seems. Banks are very cautious while approving loan applications. They evaluate a lot of parameters to make a judgement about your credit worthiness. If you lose out on even a single lending criteria, your loan application might get rejected.

If this happens it might be a serious blow to your financial plans. But rather than brooding over the bank’s decision take this situation as a learning lesson and work on the reasons of rejection. Understanding the cause of denial will serve as an eye opener and help you improve your financial well-being.  Following are some of the most common reasons that may impact your personal loans eligibility application gets rejected.

Insufficient income

Your income is a major factor that influences the bank’s lending decisions. They want to make sure that your income would be able to sustain the monthly repayment of the dues.

If your income does not meet the minimum criteria set by the bank they may out rightly reject the application. It is better to find out about this requirement and evaluate yourself on this scale before filing an application. If you find out that you do not meet the criteria it is better not to apply to such banks. A rejection in this case will only bring a dip in your CIBIL score.

Apart from this they also check your job profile to gauge the stability of the job. If you have a temporary job, or you are on probation, or you have a history of switching jobs too soon then your application might get declined. If your employer is not on the companies approved list of the bank or if a major chunk of your salary is based on sales commission then too you may find it difficult to obtain loan.

Hence banks may show you the door if they have any doubts about your future financial situation.

Bad CIBIL score

All banks use the filter mechanism of CIBIL score to determine whether a customer is worthy of giving credit. Some banks require a minimum CIBIL score of 750 to even consider your application.  If your past payment record is tinted or if you have a history of frequent defaults then you will be pegged as a risky borrower. Banks also pay a lot of attention on the number of recent hard enquiries on your report. They become cautious if you have a number of hits in the recent past as it signals a credit hungry behaviour. You can check your own CIBIL report and find out where you stand in terms of credit. It will give you a fair idea of whether you meet the lending requirements of the bank.

Incomplete or Incorrect details

A lot of worthy applications get rejected because of incomplete paper work or lack of important documents which the bank needs to take a decision. Make sure you do the paperwork carefully and submit all the relevant documents required to support your case. Banks verify all the details and any inconsistency will give them a good reason for rejection.

Errors in the credit report

There is a chance that your application gets rejected for no fault of yours. As you are aware that banks check your credit report to evaluate your creditworthiness, any errors in this document may cause you to lose out on the loan. Inaccuracies in the payment details or an identity theft can be particularly dangerous as it brings down your CIBIL score. It is a good practice to keep a vigilant eye and check your report carefully before filing a loan application. If you find any inconsistencies you can dispute them and get them corrected.

Thin credit file

If you do not have any past experience with loans and credit cards there is no record to show how committed you are to uphold your obligations. In the absence of past credit history banks find it difficult to judge your reputation. Some overcautious banks who do not want to take any risk may reject your application, while some banks will go in for a lot of due diligence. They will do an exhaustive background check of your income, job stability and residence to assess the risk associated in dealing with you.

Too many loans

Banks check your debt to income ratio to understand your repayment capacity. If you are already knee deep in loans it serves as a red flag to the lender. That’s because a large part of your income is already going in servicing the current obligations. Banks consider such applicants as risky even if they have a good CIBIL score.

A personal loan rejection is only a temporary setback. If you use it as a learning lesson and change your credit behaviour it can pave the way to a healthy financial future.

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