Instant personal loanshave become one of the most preferred financing options among Indians for myriad reasons. Firstly, the ease of availing the funds within minutes makes it a go-to solution during emergencies. Be it a medical situation or an urgent purchase, the perks of a personal loan stand unmatched. All you have to do is check the eligibility criteria, fill out the form, and submit the necessary documents.
However, as simple as it appears, there are times when the loan application gets denied. Though this is unlikely to happen, there are several reasons why your loan application can get rejected. Know more about these potential reasons before you click on the apply now button, as a loan rejection also means a drop in your credit score.
To assist you, we have prepared a list of potential reasons why your loan was declined, as well as advice for what you can do if this occurs on your quick cash loan app.
Reasons Why Loan Can Get Rejected
Even if you find the greatest instant personal loan lender, your loan may still get rejected. Here are a few plausible reasons.
1. Poor Credit Score
The first thing that a lender does after getting your loan application ischecking your credit score. Your credit score reflects your past borrowing behavior. It gives a detailed account of all your loan accounts, the number of open and closed credit accounts, and how responsible you are for your EMI payments.
A higher credit score indicates you are a safe borrower while a low credit score means you are a risky borrower. Many lenders do not offer loans to individuals whose credit score do not match their minimum requirement criteria. So, before you apply for the loan make sure to check your credit score online, and try to improve it, in case it does not match the lender’s requirements.
2. Job Instability
Your job situation is a significant consideration in the personal loan eligibility criteria. People who are employed in reputed corporate companies or are having government jobs can get a personal loan with ease. But if you are working with a start-up on a low salary or if your company fails to credit your salary on time every month, then the lender may reject your loan application.
Also, if you move jobs frequently, it might have a negative influence on your loan application. In such cases, you can either add a co-applicant to your personal loan application or you can show your additional sources of income. Make sure your co-applicant has a good credit score and a steady source of income.
3. Low Income
One of the basic conditions for qualifying for a personal loan is to have a steady source of minimum income. For many lenders, the minimum limit is Rs. 15,000, but this number can vary according to your choice of lender.If your income is lower than the criterion or fluctuating, your chances of getting rejected get high.
Also, please note that the salary in consideration will not include the monthly incentives that you earn. The acceptance or rejection of your loan application will depend on your basic salary. Here also, you can show additional income proof or add a co-applicant to your loan application to get qualified.
4. Ineligibility
Every lender has certain eligibility criteria including age, nationality, income, and credit score. If you do not pass any one of these eligibility criteria, then your chances of your loan application getting approved reduces.
It is important that before clicking on the apply now button, you go through the eligibility criteria mentioned by the lender on their website. Apply for the loan only if you meet all the mentioned eligibility criteria. You can also seek help from a representative from the financial institution to help you understand the eligibility criteria.
5. Incorrect Application Details
One of the most common reasons for loan rejection is incorrect application details. Many people make silly mistakes on their loan applications, or they fail to furnish all the necessary documents requested by the lender. In such a case, there is a high chance that your loan application may get rejected.
Also, make sure the signature on your loan application matches perfectly with the signature on the identity proof and address proof that you are sharing. It is also important that you upload your recent passport-size photo that meets the guidelines shared by the lender. Taking care of these small details will help you avoid a loan rejection.
6. Excessive Current Debt
Getting a loan to fulfill your needs might seem like an easy and appealing option. However, it is important to note that a loan is a financial liability that you are obliged to pay back on time in easy monthly installments. This EMI amount could easily become a burden if your income-to-debt ratio is not balanced properly.
Hence, we highly recommend you avail a loan only when there is no other alternative. Your probability of obtaining a personal loan diminishes if you have several active loans. In case you still want to apply for a personal loan, then you may do so by closing some of the open loan accounts with foreclosure payments.
7. Missing Documents
Only once your documentation has been verified your loan application will get authorized. Your lender may reject your loan application if any required documents are missing or contain inaccurate information.Document verification is an especially important step that helps financial institutions avoid fraud or scams.
Hence, submitting documents that are not clearly printed can also lead to loan rejection. In addition to this, your salary slips, and bank account statements should also match perfectly. Any discrepancy can lead to a loan rejection. In case, you own a business, your balance sheet and account statements should match perfectly.
What to Do If Your Loan Application Is Rejected
Here are some tips you can follow in case your loan gets rejected.
Identify the Reason for the Rejection
When your loan application gets rejected the first thing you should do is figure out the reason behind it. To avoid loan rejection in the future, you may begin upgrading your profile after you’ve determined the cause. The following are some common causes of loan rejection:
- Poor Credit Score
- Job Instability
- Low Income
- Ineligibility
- Incorrect Application Details
- Excessive Current Debt
- Missing Documents
In addition to these factors, the lender’s lending policy may also play a role in other potential grounds for rejection. In this situation, it is wise to compare the eligibility requirements of several lenders and apply where your eligibility and the loan conditions best align.
Check Your Credit Score and Make Efforts to Improve It
Credit ratings are crucial and serve as the basis for the approval or rejection of your personal loan. Lenders only assess your income and repayment capabilities once you have cleared the credit score barrier.
If your loan application is denied due to a low credit score, you should immediately start working on improving your credit score. To improve your credit score, pay your EMIs on time and never fall behind on any loan or credit card payments.
Make Sure That You Provide All the Necessary Documents
You will be asked to submit a few documents along with your loan application. These documents include your KYC documents like identity proof, residential proof, and age proof. Your loan application may be turned down if any of the required documents are either missing or do not match the lender’s list. Additionally, if there is a mismatch between your papers and the information you submitted, your application may also be rejected. For example, the address you mentioned in the loan application is different from your address proof.
If your personal loan application is rejected, for this reason, you can resubmit it after discussing it with your lender. However, the lender can prevent you from reapplying if they believe you purposefully changed the paperwork, gave inaccurate information, misrepresented the information, or concealed any data.
Maintain a Proper Income-To-Debt Ratio
Your debt-to-income ratio is the comparison of your monthly debt payments to your income. Simply put, it refers to the portion of the monthly income you use to pay your debts such as rent, credit card bills, mortgage, and other obligations. Your loan can get turned down if you have a low income when compared to your debts.
To address this issue, you can apply for loans that are made accessible to those with lower incomes. Also, if you believe that most of your present debt is unsecured, you could choose to pay off some of it. The right balance of secured and unsecured borrowings is what lenders want.
Avoid Applying for Multiple Loans
You should avoid applying for multiple loans because when you submit a request for multiple loans it conveys to the lenders that you are desperate for funds. Additionally, it paints a negative picture of the applicant’s financial status and might appear phony. It may be seen as financial misconduct and will result in a lowering of your credit score.
Conclusion
Applying for an instant personal loan has gotten much easier than in the past, but if your application is declined, the information in this article is still essential to remember for future applications.
If you are in urgent need of funds, then in the meantime you can try for some other small loans like a gold loan, loan against security, etc. Which have a comparatively low-interest rate. After a few months or a year, if you feel like your credit score has improved, then you can always come back and apply for a loan on your quick cash loan app.
