How to avoid rejection of personal loan application

Posted on Monday, September 25th, 2023 | By IndusInd Bank

The process of applying for a personal loan has become easier and seamless with the entire process going digital. Nonetheless, lenders closely scrutinise factors like your credit score and payment history before approving your application. This is crucial as a lot of personal loan applications get rejected due to various reasons. This blog will take you through some of the common reasons behind the rejection of applications, along with strategies to avoid them.

Common reasons behind the rejection of a personal loan

Getting a personal loan has become convenient, as the time taken to process the application, approve the loan and disburse the funds has become entirely digital. Moreover, these loans are popular because they don’t require collateral and have no end-use restrictions. Yet, approval isn’t guaranteed for all applications. Some of the common reasons why lenders reject a personal loan application are:

1. Low credit score

Having a low credit score is an indicator of high credit utilisation, bad payment history, and poor credit management skills. If you have a low credit score, lenders consider you to be a high-risk applicant, which leads to the rejection of the loan application.

2. Low income and high debt

Your annual income, along with your current debt, is carefully assessed by lenders to understand if you meet their personal loan eligibility criteria. They assess this to gauge your repayment ability. Having too many loans is considered a red flag by lenders. So, if your debt-to-income ratio is on the higher side, lenders might reject your application because you might not be able to handle more debt.

3. Errors / negative remarks in credit report

Any negative remark in your credit report, like  ‘written-off’ or ‘settled’ might make the lender rethink approving your loan application. Additionally, inaccuracies like incorrect payment reporting or errors in personal and PAN details can lead to rejection.

4. Multiple loan enquiries and applications

Applying for multiple loans within a short span can prove to be harmful to your loan application. You must know that every lender scrutinises your credit report before approving any loan. If your report indicates multiple loan applications or enquiries, lenders will question your financial credibility. This could lead to rejection of your loan application.

5. Incomplete application and documents

Your documents play a vital role in your loan approval. These documents are used to evaluate your credibility. If you miss submitting important documents or filling in important information as required by the lender, they could reject your application.

6. Unstable employment history

Your employment history is essential for a personal loan application. Applicants who work in companies that are not registered might face issues in getting their personal loan approved. Furthermore, any gaps in employment or regular switching of jobs can negatively impact your loan approval.

Tips to avoid rejection of personal loan

1. Improve your credit score

The most crucial step you must consider is improving your credit score. A score above 750 is considered excellent, given that credit scores range from 300-900. Here is how you can achieve an excellent score:

• Review your credit report regularly, check for errors, and report them immediately.
• Pay all your loan EMIs and credit card bills on time.
• Use your credit card responsibly and aim at reducing the credit utilisation ratio.
• Do not make multiple loan or credit card enquiries within a short duration.

2. Build a strong financial profile

You must build a strong financial profile. A robust financial profile signals to lenders that you are financially stable and responsible. Here’s how to do it:

• Provide proof of any promotion and raise in your pay structure. Furthermore, try to enhance your income via freelance work or gigs.
• Minimise the number of loans taken by you by clearing them off. Ensure your debt-to-income ratio is below 35%.
• Having savings in the form of investments or an emergency fund not only helps you in times of emergencies but also has a positive impact on your loan application.

3. Have a complete set of documents

If the documents submitted by you are incomplete and are not in sync with the lender’s requirements, your loan application can be rejected immediately. To prevent this,

• Ensure you know the documentation requirements of the lender you are applying with.
• Crosscheck your documents and information filled in the application before submitting them.

There are a few leading loan providers like IndusInd Bank that have a 100% paperless personal loan application process. This ensures quick processing and speedy disbursal of your personal loan.

4. Have stable employment

A lender will always give preference to applicants with a stable employment history and working with registered companies. 

• Ensure you’ve been employed with your current organisation for at least a year before applying for an online personal loan.
• Ensure you have valid reasons for any gap in your employment journey.

5. Opt for a co-applicant or guarantor

While applying for a personal loan, in case you do not have strong financials to support your application, you can rope in a co-applicant or a guarantor. However, ensure your co-applicant / guarantor has a good credit score and income.

6. Select the right loan amount and lender, such as IndusInd Bank

IndusInd Bank can be your trusted partner when you are in need of a personal loan.

• Applying for an instant personal loan is 100% digital and paperless.
• You can avail of loan amounts ranging from ₹30,000 to ₹5 lakhs.
• The bank offers competitive interest rates starting from 10.49% p.a.
• You can choose a flexible repayment tenure ranging from 12 to 48 months.
• Before applying for an IndusInd Bank Personal Loan, you can gain clarity on the monthly EMIs payable by using IndusInd Bank’s Personal Loan EMI Calculator. This will help you choose your loan amount and tenure according to your budget.

You must remember that in case your loan application gets rejected for any reason, do not be disheartened. It allows you to understand and address the reasons that led to the rejection. You can work on these areas and reapply for a personal loan shortly.

Conclusion

Getting instant personal loan approval can help you in times of financial crisis. Yet, this requires thorough research and preparation on your part. Being selective when applying for a personal loan is crucial, as multiple rejections can negatively impact your credit score.

By understanding the common reasons for rejection and following the tips to avoid rejection of your personal loan, you can improve your chances of getting your loan approved. If you require an instant personal loan without the hassles of tedious paperwork and at competitive interest rates, apply now for an IndusInd Bank Personal Loan!

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.