Jun 14 • 3 mins read
Unable to get a loan? Here are 11 Reasons why your loan application could be rejected
Getting a personal loan is a challenging task, and if you are in the market trying to get a loan, then you might have put in a lot of research to find a lender that gives you the best deal. While finding the right lender who gives you the best deal on your loan seems like an excellent task, it does not guarantee that your loan application will get approved.
Many people face loan rejections on an everyday basis, and there are several reasons behind it. In this article, we will discuss the key reasons for the rejection of your loan.
11 Reasons Why Your Loan Application Could Be Rejected
1. Income and debt
Maintaining a good credit score is excellent; however, lenders also consider your yearly income and your current debt when applying for a loan. This allows them to determine if you can pay back the amount you ask from them. If your yearly income is low and the lenders think that you’ll be unable to repay the amount you are requesting, then there are chances that your loan application will get rejected. To decrease the chances for this, you should pay off your debts if you have any.
2. CIBIL Score
Your CIBIL Score is one of the most important factors that lenders and banks consider before giving you a loan. Your credit score is based on how well you manage your credit. If you have maintained a good credit utilization ratio and you have a history of timely payments, then it’s likely that you’ll have a good credit score that’ll make you qualify for loans. However, people who fail to do this have a lower credit score, leading to the rejection of their loan.
3. Negative event or error on a credit report
People can build up their credit score within 18 to 24 months, even after major events like bankruptcy or foreclosure. If your history has something like this, it will easily scare off the lenders leading to a rejection of your loan.
4. Incorrect or Incomplete Loan Application
The information you give on your loan applications plays a massive role in the approval of your loan because banks use these documents to check your credibility.
Often, loan applications get rejected when people forget to attach the required documents or don’t fill out the mandatory details. Hence it is necessary to carefully fill out the loan application and provide all the needed documents.
5. Mismatching of Signature
Getting a perfect signature is a problem for many people, and as per the rules, it should remain the same everywhere. Now, getting a loan isn’t that easy, and when you do the wrong signature on the loan application, it ends up getting rejected. Therefore, you must try to make the perfect signature that matches your other documents when you don’t want any rejections in your loan application.
6. Utilization of Fund
This is a lesser-known fact, but the people who usually apply for personal loans use the funds for marriage, vacation, home renovation, or buying a new gadget. However, if you are applying for a personal loan so you can use the funds to set up the business, it will contradict the income security. Always remember that banks give you a loan based on your current salary, not the growth of your business.
7. Credit Report Errors
The most common errors in your credit report can be incorrect reporting of some payments, mistakes in your personal details, a closed account still shown as active, PAN Details, and more. Such errors in your credit report can also lead to the rejection of your loan application. Therefore, if you see any errors in your credit report, you should raise a request to get it fixed.
8. Forget to Take the NOC from the Previous Lender
NOC stands for No Objection Certificate, and getting it is a must when you have closed a loan. If you are applying for a new loan and you haven’t taken a NOC from your previous lender, you should take it because the loan applications can get rejected if your credit report doesn’t mention NOC.
9. Inaccurate Details
A loan application can also get rejected when you have provided inaccurate details to the lender. Every detail you provide is carefully verified for authenticity, and hence if lenders notice there is something wrong, they’ll end up rejecting your loan application.
10. Residential Stability
Usually, the documents you provide for KYC take care of your Residential Stability by giving banks the proof that you have a permanent address that confirms your stay in the city. If you live on rent, banks may ask you for some additional details, and if the banks can’t verify your residential stability, your loan application will get rejected.
11. Bank’s Defaulter List of Location
This might sound weird to a lot of people, but if you are living in a location or an area that falls under the bank’s negative zone or comes under the defaulter list, there are high chances that the bank will end up rejecting your loan even when you have a good credit score.
Therefore, it is important to avoid these mistakes that might lead to a loan rejection.