Reasons why personal loan gets rejected and how you can avoid it

A personal loan is one of the most favourable options when it comes to seeking financial assistance. The features of the loan allows an individual, to use the funding from this loan for any financial requirement except for agricultural and business ventures.

However, as easy as it may sound, an application for this loan can also get rejected, leaving you without any funds. This may pose a problem, especially if you require a personal loan for any emergency financial need.

So how can you avoid a rejection of such a loan? By understanding the different common reasons as to why this loan gets rejected, you can take the necessary steps and ensure that your loan application has a high chance of approval. Given below are the different reasons for the rejection of a loan application and how you can avoid it:

Your current residential address is on the defaulter list:

As part of the application process for the personal loan, you will need to submit proof of address. However, if you have lived under the same roof as an individual who has defaulted on a loan payment or any other financial due and who has consequently been reported to the CIBIL, the bank would have probably blacklisted your address. In this case, there is a high probability of your loan application getting rejected. To avoid such a situation, you will need to first check with the CIBIL to see if your address is on the defaulters list or not. If that occurs, take the necessary steps to make the change.

Failure to repay your dues on time:

No doubt, you would have a schedule to keep to if you need to pay your bills or any credit cards. Any failure to repay this dues on time, will lead to the reporting of your profile to the CIBIL. When you apply for a loan such as the personal loan, the bank will definitely look up your financial track record. Such details would influence the bank’s decision to approve your loan, which could lead to a rejected application. To avoid such a situation, you must keep a strict vigil on all your repayments, well before you apply for this loan.

High debt to income ratio:

Banks will always check if you have previously applied for a loan, or if you are currently paying off another other loan. In comparison to this, they will also check your income, not taking into account other income from other sources apart from your employment. If an additional loan, such as the application for the personal loan would increase the strain on your income, making it unlikely for you to repay the loan back efficiently, your application has a high chance of rejection. To avoid such a situation, you must first repay all your previous loans or any other dues. Ensure that your debt to income ratio is low enough before you begin the processing for this loan application.

Apart from these, there are plenty of other reasons which would lead to the rejection of your personal loan. However, with proper planning and strategy, you can easily ensure that your loan has a low chance of getting rejected.