A personal loan is a multipurpose unsecured loan that can be denied for a variety of justifications. Repeated personal loan rejections might bump up your hard inquiries, lowering your credit score. Hard inquiries indicate that you are desperate for more credit; therefore, financial institutions may conclude you are a high-risk borrower. If your most current personal loan application was denied, you should investigate the reasons behind the rejection. Continue reading to learn more about why the application for your personal loan may be denied.
Personal loan rejection causes
Causes for personal loan rejections can be divided into six categories; however, they differ from institution to institution; every lending institution has its own internal standards for determining creditworthiness and risk assessment.
- Insufficient credit score
- Uncertain employment
- Poor earnings
- Being an employee for a delisted private company
- Not within the specified age limit.
- Living in an area with high defaults
Personal Loan
Financial institutions present attractive personal loans for covering short-term demands such as weddings, healthcare expenses, higher education, excursions, property maintenance, and so on, with cheap processing fees along with reasonable interest rates. The monthly income requirement is quite low, allowing people from many walks of life to apply for a personal loan.
Reasons for Personal Loan Refusal
Each lending institution has its own set of eligibility requirements for personal loan authorization. Similarly, the causes of personal loan refusal may differ depending on the denial criteria of the various other institutions.
The factors listed below are the most likely explanations for why the application for a personal loan will be denied.
Employment Requirements: Banks only make personal loans to medical professionals, chartered accountants, staff members of private limited firms, and staff members of public sector organizations such as national, state, and local governments. If you do not fit into this group of applicants, your personal loan application will very certainly be denied.
Even if you are employed by a private company, your personal loan application may be denied. This may be the case if the organization you are employed by falls into the bank’s classification for delisted companies.
Age Requirements: To be eligible for a personal loan application, you need to be at least the age of 21 and no older than sixty years. If you are not in this age bracket, the application for a personal loan will be denied. The lending institution specifies an age limit to ensure that you will be capable of repaying the loan with no problem.
Inadequate Income: A reliable source of income demonstrates to any creditor that you are adequate for returning your personal loan. To be eligible for a personal loan, each bank establishes a certain minimum monthly or yearly income criteria. Likewise, financial institutions have established a monthly pay cap. Your personal loan applications might be denied if you do not satisfy this minimal income criterion.
Career Instability: The habit of frequent job changes gives the lending institution the appearance that you are untrustworthy to the company for which you are working. With such a mindset, it may be challenging to obtain a personal loan because it is a loan with no guarantee, which means no collateral is required.
Banks demand their borrowers to be employed at a stable job for at least two years and, more significantly, to have worked for the company they have currently employed for the previous six months.
Poor Credit Score: Credit bureaus calculate your credit score by considering your credit history. A high score demonstrates how accountable you are with your money. Financial institutions regard it as an important indicator for determining someone’s creditworthiness.
Bad Credit Rating: A bad credit rating will limit your ability to get a personal loan. It might represent one of the biggest explanations for why your personal loan application was denied.
Repeated Applications in a Short Period of Time: This is another factor that may result in personal loan refusal. Multiple loan applications in a small time gap give the lender the impression that you have become credit-hungry and maybe a risky applicant.
The Effect of Personal Loan Decline on Credit Score
The answer that you receive to this inquiry is determined by the stage at which your request for a personal loan is currently being processed. After reviewing the qualifying criteria, an applicant will often apply for a personal loan as well as continue submitting the required documents. If it is difficult to provide the necessary documentation, the personal loan may be denied.
After all of your documentation has been validated, financial institutions will look at your credit score to determine how reliable you are. It’s known as a hard inquiry. In the worst-case situation, when your credit score is poor and the personal loan is denied, the hard inquiry will have a minor influence on your credit score. As a result, if you are subjected to many hard inquiries, your credit score will suffer.
Verification procedure for personal loans
For existing clientele, the personal lending process is straightforward and significantly faster. Users can apply securely online and receive pre-approval offers for personal loans with low-interest rates. The loan amount is immediately transferred to their account.
Besides, non-existing clients’ application processes vary. Borrowers may submit applications for a personal loan through the web, collect the application form through the institution’s official website, or go to the nearest financial institution office. They can also contact the bank’s customer service to continue the application procedure.
A banking institution representative will ask for the completed application form as well as any necessary documentation for authentication. The bank will conduct a background investigation using the person’s personal and professional details.
If there are any errors in the details submitted, the personal loan request will most certainly be declined. The status of the authorization procedure advances to the next level shortly after successfully completing the verification of paperwork and criteria for eligibility. Finally, the interest rate and term are determined and delivered to you for approval.
Online Personal Loan Application Process
When the personal loan seeker already has a connection with the lending institution, the individual can submit an application for a personal loan through their personal online banking account and may be qualified for pre-approval.
Applicants may submit applications for a personal loan online simply by completing the steps outlined below:
- Browse the financial institution’s official website.
- Select personal loans from the loan section.
- Select the ‘apply now’ button.
- Fill out the personal loan request form and send it to the financial institution.
- The financing institution will analyse the applicant’s eligibility and request the provision of the necessary KYC and income papers.
- If the applicant is deemed to be eligible, the lender will make the loan available.
Offline personal loan application process
Go to the lending institution’s branch.
- Collect the personal loan request form and fill it out completely.
- Submit documentation proving an individual’s income, age, address, and identification.
- The lending institution will subsequently verify the documentation and determine the applicant’s eligibility criteria.
- If the person submitting the application is confirmed to be eligible, the funds for the loan will be deposited into his or her bank account.
Otherwise, you can make your loan application through the Refer Loan’s official website. We can assist you with any of your personal requirements. From a new car or home to paying off an old loan or credit card, we provide personal loans at the most affordable interest rates in the financial services industry.
A solid credit score enables you to secure a personal loan with greater terms, and a strong credit profile leads to fewer personal loan denials. Therefore, if you have poor credit, you should strive to find strategies to raise it.
You might try to determine the causes of the personal loan refusal and take the necessary steps to make yourself eligible to receive further loans.
The bank’s policy on intimation varies. You may be notified via e-mail or a personal loan refusal letter to your postal address.
Personal loans are available to people between the ages of 21 and 65.
Yes, but only if you have made improvements to your credit rating or corrected the errors on earlier loan applications.
You may submit applications online or in person at a nearby financial institution office.
The monthly minimum wage requirement ranges from Rs. 10,000 to Rs. 30,000.
It varies from lender to lender. Certain financial institutions do not charge processing costs for personal loans, whereas other institutions charge 0.5% to 3% of the loan’s total amount.
The average processing time for a personal loan is seven days.