What to do if Your Personal Loan Application is Unapproved?


14 Oct 2019 | 5 min read

Imagine…you have planned for a vacation and have booked your tickets. To meet several other expenses, you applied for a personal loan. You were in confidence about your loan approval, but a few days down the road, you receive a loan rejection letter from the bank. Now all you think about that, what should you do now? So, here is the answer.

In case a specific bank has rejected your loan application, then come to Afinoz, an online financial marketplace empowering consumers and financial institutions digitally. You can compare the financing options of various banks and NBFCs at one place and may get eligible for a personal loan from any other lender. 

Add to this, we would also like to suggest a few tips that can help you to get your loan application approved.

1#. Analyze the situation

Find out the reason behind the rejection of your loan application. While each and every bank credit checks, risk profiling, and loan lending policies slightly vary from one another, the real reason could be something hidden and easily overlooked. Generally, lenders give you an explanation of loan application rejection. The reasons can be low or no credit score, not enough income to repay the loan, and high debt to income ratio. 

2#. Get CIBIL report corrected 

You may have discrepancies in your credit report. In case you track a discrepancy, get it corrected with the credit bureau. Review the credit report regularly to make sure there is no error on it like unauthorized hard inquiry or other clerical errors. You can get the free credit report online.

3#. Build your credit before applying again

You want to get a personal loan for Rs. 2,00,000 with the tenure of 3-5 years. If you have fair credit, you might get approved for an interest rate of 12% while someone with good credit might get an interest rate of 10.9%. 

So, it is advisable to wait until you improve your credit score before re-applying for the personal loan, it could save you on monthly payments and rate of interest charges over the life of the loan. 

4#. Make timely credit payments

 The credit repayment history plays the most important role in your credit score. The payments that are late by a few days or longer show up on the credit report.

5#. Keep low credit card balance

The credit utilization; the total credit card balances divided by the credit limits — are another important factor in your credit score. If you have a high credit balance, pay them down as soon as possible, and then keep them down going forward.

6#. Avoid many inquiries

If your loan application is rejected, it can be tempting to apply with too many lenders until you get it approved. But as many times you apply the number of inquiries also increases. And multiple inquiries in a short period can provide you with a red flag from the lenders.

7#. Limit the Outstanding Debt

The debt to income ratio (DTI), like the income, is a measure of how much you can manage to borrow. It not only shows the lender that you can repay the loan each month but also that you’re responsible for the money. A high DTI reflects that you’re using too much of the money paying off the other debt. 

8#. Showcase your employment stability

Generally, lenders consider the various sources of income, but not always. Irregular sources of income won’t cut it. A lender may require a borrower to have been employed by a reputed organization for a specific period of time, say at least 2 or 3 years

9#. Keep all the required documents ready with you

The list of required documents may differ from one lender to another. Here is the generic list of documents:

  • Complete personal loan application form.
  • Address proof (copy of Passport/Voter ID card/Driving license/Aadhaar).
  • Last 3 months bank statements (Passbook for the past 6 months).
  • Latest salary slips.
  • Form 16
  • Basic KYC documents like copy of Passport, Voter ID card, Driving License, Aadhaar card.
  • Salary certificate. 
  • Income tax returns for the last 2 years (in case of self-employed)

10#. Verify Your Details

Before submitting your details always double-check your loan application. Missing even small details could result in a loan application rejection. If a lender can’t verify the details, it won’t be able to offer you a personal loan.

Hope these tips will help you in your personal loan approval. Still, if your loan application is rejected, then go for several other options like a credit card, an unsecured personal line of credit, peer-to-peer loan, salary advance, small business loan, etc. And meanwhile, you can improve your credit score so as not to face any loan rejection in the future.

You can read here the causes of home loan rejection

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