Personal loans are a convenient way to finance your dreams, from buying a car to funding a vacation. However, getting a personal loan approval in India can be tricky, with many applicants facing personal loan rejection due to several reasons. This blog explores the top reasons for personal loan rejection in India and why it's crucial to address these factors before applying for a loan.
This comprehensive guide covers various aspects of loan eligibility, including credit score, income and employment status, debt-to-income ratio, existing debt and other factors that lenders consider while evaluating loan applications. Whether you're planning to apply for a personal loan soon or just want to improve your creditworthiness, this blog is a must-read for you.
In India, the process of obtaining a personal loan approval can be challenging, as even those with strong credit scores may face rejection for their loan applications due to a multitude of reasons. Some of the possible reasons are explained in detail for a better understanding.
- A credit score is a numerical representation of a person's creditworthiness.
- Incorrect information on the loan application can lead to personal loan rejection.
- Multiple loan applications can also lead to personal loan rejection.
- Only borrow the amount you need and choose a loan term that suits your repayment capacity and choose a suitable loan term.
Some of the Reasons for Personal Loan Rejections
Low Credit Score:
One of the most common reasons for personal loan rejection is a low credit score. Banks and financial institutions use the credit score to assess the risk involved in lending money. Credit scores are numerical representations of creditworthiness. A credit score below 750 is considered low and can lead to personal loan rejection. This is because the lender may consider the borrower a high-risk borrower and may not be confident about their ability to repay the loan on time.
High Debt-to-Income Ratio:
Another reason for personal loan rejection is a high debt-to-income ratio. The debt-to-income ratio is the ratio of a person's monthly debt payments to their monthly income. If the ratio is high, it indicates that the borrower is already burdened with too many pending loans and adding a personal loan to it will only increase their financial burden. This may cause the lender to hesitate in approving the loan application.
Inconsistent or Insufficient Income:
Lenders prefer borrowers who have a consistent and sufficient income to repay the loan. If a borrower's income is inconsistent or insufficient, it can lead to personal loan rejection. Lenders want to ensure that the borrower has the financial capability to repay the loan on time and a lack of consistent or sufficient income can be a cause for concern.
Lenders prefer borrowers who have a stable job and a steady source of income rather than an applicant with an insecure job. If the borrower has changed jobs frequently or has a history of unemployment, it can lead to personal loan rejection. This is because the lender may not be confident about the borrower's ability to repay the loan on time.
Inaccurate Details in the Application:
Incorrect information on the loan application can lead to personal loan rejection. Lenders verify the information provided by the borrower and any discrepancies or incorrect information can lead to rejection. It is important to provide accurate and complete information on the Shriram Personal Loan application to avoid rejection.
Lack of Collateral:
There is no collateral required for personal loans since they are unsecured loans. However, if a borrower has a poor credit score or a high debt-to-income ratio, the lender may ask for collateral to secure the loan. If the borrower is unable to provide collateral, it can lead to personal loan rejection.
Multiple Loan Applications:
Multiple loan applications can also lead to personal loan rejection. When a borrower applies for multiple loans at the same time, it can indicate a lack of financial stability. Lenders may view this as a sign of desperation, which can lead to rejection. Prudent borrowing entails applying for a personal loan solely when the need arises and refraining from simultaneous applications for multiple loans.
Therefore, it's essential to understand the reasons for loan rejection and address them before applying for a loan. By doing so, you can increase the chances of loan approval and get better interest rates. In the next section, we'll discuss some tips to improve loan eligibility and increase the chances of approval.
Tips to Improve Shriram Personal Loan Eligibility to Improve Chances of Approval
Improving your loan eligibility is crucial to increase the chances of approval and getting better loan terms. To improve your loan eligibility, follow these tips:
Check your credit score:
Start by checking your credit score and credit report regularly. If your credit score is low, take steps to improve it, such as paying bills on time, reducing credit card balances and disputing errors on your credit report.
Reduce your debt-to-income ratio:
Your debt-to-income (DTI) ratio is a measure of your debt compared to your income. A high DTI ratio indicates that you may have difficulty repaying your loan. To improve your DTI ratio, pay off debts and avoid taking on new debt.
Choose the right loan amount and term:
Ensure to borrow only the necessary amount and select a loan duration that aligns with your ability to repay, opting for a suitable term.
Provide accurate information:
Ensure that the information on your loan application is accurate and up to date. Any discrepancies or incorrect information can lead to loan rejection.
By following these tips, you can increase your loan eligibility and boost your chances of getting approved for a personal loan in India.
In a nutshell, personal loan rejections in India can be challenging, but it's not the end of the road. Maintaining a good credit score, having a stable job, providing legitimate information and avoiding multiple loan applications are some of the ways to increase the chances of your Shriram Personal Loan approval. By addressing the reasons for loan rejection and taking steps to improve your loan eligibility, you can increase your chances of getting approved for a personal loan.
1. Who is not eligible for a personal loan?
Individuals who have a poor credit score, a history of defaulting on loans and no or low income are not eligible for a personal loan. Additionally, those who do not meet the age and documentation requirements set by lenders may also be ineligible for a personal loan.
2. What factors affect personal loan eligibility?
Personal loan eligibility is affected by several factors such as credit score, income, employment history, debt-to-income ratio, age, location and loan amount. Lenders evaluate these factors to assess the borrower's creditworthiness and ability to repay the loan.
3. What are the 5 easy steps to get a personal loan?
The five easy steps to get a personal loan are:
Step 01: Check your credit score and assess your eligibility
Step 02: Research and compare loan options
Step 03: Gather and organise all necessary documents
Step 04: Apply for the loan online or in-person
Step 05: Wait for loan approval and receive the funds in your bank account once approved.