Why is Loan Rejected: Loan is getting rejected again and again? Know the reasons why banks reject loans and what things to keep in mind before applying again.
Loan Rejection: People take loans from banks or financial institutions for home, car, business or personal needs. But many times the loan gets rejected even after applying. This does not mean that the bank does not like the customer. The bank sees whether the applicant can repay the loan on time or not. If the bank finds the risk too high, it rejects the loan application.
For what reasons does the loan get rejected?
1. Bad Credit Score
Banks often look at your credit score (a score below 700 is considered risky) and credit history before accepting the loan. If earlier you have not made EMI or credit card payment on time, then the score may go down. Low credit score is a risk alarm for the bank. For example, if you have paid credit card EMI late many times, then there will be problem in getting a new loan.
2. Not having enough income
The bank also checks whether your monthly income is enough or not so that you can pay the monthly EMI without any hindrance or problem. If the income is low, the loan may be rejected.
3. Having too much loan already
If a large part of your income is going towards the EMI of an already existing loan, then the bank may be reluctant to give a new loan. It is also often measured on the basis of Debt-to-Income (DTI) Ratio.
4. Incorrect or incomplete documents
If incorrect information has been filled in the application, required documents are incomplete or the information is not matching, your application may also be rejected. For example, if the information in salary slip, bank statement or identity card is different, then the bank can make a separate inquiry or put a break on the loan.
5. Stability in job or business
If the job has been changed frequently, a new job has been started or the income of the business is very stable or there are ups and downs in the income, then the bank gets alerted here also.
6. Applying for loan again and again
Applying for loans continuously in many banks in a short period of time can result in many Hard Inquiries getting registered on the credit report. In some cases, the bank may feel that you need money urgently, so the risk pattern may change.
How to avoid loan rejection?
- Make EMI and credit card payments time to time.
- Check credit report before applying for loan.
- Submit correct and complete documents.
- Take loan amount according to your income.
- Do not apply for loan from multiple places in a short period of time.
- If possible, consider adding a co-applicant or guarantor, if the bank allows it.
Can I apply again after the loan is rejected?
Yes. If the loan is rejected due to some changeable reason, like lack of documents or low credit score, first correct that problem and then apply for the loan again.
Content Sources: Reserve Bank of India, TransUnion CIBIL, Experian, Equifax, National Housing Bank.