Since personal loans are unsecured forms of credit, there are many reasons for their rejection. Your credit score may hit if you apply for and are denied multiple personal loans. Lenders are likely to view you as a high-risk borrower if you make a lot of “hard inquiries,” or particular requests, for credit.
If you have just applied for a personal loan and been turned down, you may be curious why. Find out why your application for a personal loan can be denied.
Rejection of a Personal Loan
Each financial institution has its internal process to establish a borrower’s creditworthiness and risk assessment, but there are six main categories under which most personal loan applications are denied.
- A very low credit rating
- Job insecurity
- Financial constraints
- Working in a delisted private company
- Not falling into the age limit
- Being a resident of a region with high default rates
Regarding Personal Loan
Banks provide competitive personal loans for short-term necessities like weddings, medical treatments, schooling, travel, home repairs, etc., with cheap processing fees and favourable interest rates. In addition, the very low monthly income requirement makes it possible for persons with various employment situations to obtain a personal loan.
Criteria for Personal Loan Rejection
Every bank has unique requirements for approving personal loans. Therefore, the reasons for personal loan denial may differ from those for other banks’ denial criteria. However, the following are the key factors that can cause your loan application to be denied.
a. Employment Requirement:
Personal loans are only available from banks to those who work in certain professions, such as medicine, accounting, and the public sector (at the federal, state, or municipal level). Therefore, you probably won’t get approved for a personal loan if you don’t meet these requirements.
Even if you have a stable job with a private company, you may not always be able to receive a personal loan.
b. Age Criteria:
Eligible borrowers must be at least 21 years old and no more than 60 years old when the loan is disbursed. Personal loan applications from those who are too young would be denied. There is a cutoff age since the bank needs to ensure you won’t have any problems making your loan payments.
c. Inadequate Income:
If you can’t show your lender that you have a stable income, they may hesitate to give you the money you need. Each bank has its own minimum monthly or yearly income criteria when determining whether or not a customer is eligible for a personal loan. Similar to the banking industry, there is a minimum monthly payment requirement. Your application for a personal loan may be denied if your income is too low to reach this threshold.
d. Career Instability:
It can give the appearance to a lender that you are not committed to your current employer. A personal loan is a type of unsecured loan for which you do not need to provide security, so it may be more challenging to obtain one under such circumstances.
Loan providers prefer borrowers who have been with the same company for at least two years and, ideally, have been with them for the past six months.
e. Poor Credit Score:
The credit bureaus use your payment history to provide you with a numerical value known as a credit score. If you’re good with money, it shows in your score. This factor is very relevant to lenders to determine whether or not a borrower is creditworthy. Thus, if your credit history isn’t stellar, your chances of getting a personal loan with a poor CIBIL score is lowered.
f. An Overwhelming Quantity of Applications in a Limited Amount of Time:
It is another factor that could lead to a personal loan denial. In addition, you may be seen as a higher-risk borrower if you apply for multiple loans at once.
Rejection for a Private Loan and Its Effect on Your Score
This question can only be answered after seeing what stage your application for a personal loan is at. When applying for a personal loan, a borrower must first determine if they meet the necessary qualifications, after which they must submit the necessary documentation. Therefore, a personal loan application may be denied if the borrower has trouble submitting the required paperwork.
Lenders will look at your credit rating to determine your eligibility for a loan after they have confirmed your identity. We term this method “hard inquiry.” If your credit isn’t great and the personal loan application gets turned down, the hard inquiry will have a minimal negative effect on your credit. Consequently, making several hard inquiries on your credit report will negatively impact your score.
Personal Loan Verification Process
For returning customers, getting a personal loan is easy and takes much less time. When they apply online, they will receive offers for low-interest personal loans that have already been pre-approved. Then, the loan funds will be deposited immediately into their account.
Other customers have a different application process. For example, borrowers can apply for a personal loan online or by visiting a local branch of their preferred financial institution and filling out an application there. They can also apply by calling the bank’s customer service line.
A bank agent will pick up the completed application and all supporting documentation. Next, the customer will undergo a thorough verification process as the bank investigates their personal and professional history. Any inconsistencies in the data submitted will most likely result in the denial of the requested personal loan.
The last stage of the approval procedure occurs once all required documentation and eligibility criteria have been met. Finally, the interest rate and term length are finalized and forwarded for your approval.