Applying for a personal loan has become very simple and hassle-free these days due to faster loan processing and online application process. Banks, NBFCs, and several other financial institutions offer a range of personal loans with different interest rates to help you with your financial needs. However, it is essential to meet the eligibility criteria set by these lenders to avoid rejection of your personal loan application.
Read this blog to learn how to avoid rejection of personal loan applications.
While most lenders set specific eligibility requirements to make it easy for all applicants to get loans, there may be occasions when your application's status is left uncertain.
However, you can protect your personal loan application form from being rejected by the lender by taking a few necessary steps. Here are some pointers that should be known to avoid rejection of personal loan applications:
A lender's primary metric for assessing repayment capacity is FOIR or fixed obligation to income ratio. Any rent you pay, any unpaid EMIs, regular payments on investment-linked products, and the monthly costs for sustaining your standard of living are all examples of fixed obligations.
Ensure your fixed expenses don't consume over 40% of your monthly earnings. Although lenders' precise cut-off point ratio ranges, it is generally between 40% and 50%. A low FOIR makes you a better candidate for a personal loan because it indicates to lenders that you have more money available and can make your EMI payments on time.
The ratio of credit you have used to the credit you have available is known as the credit utilisation ratio. It would help if you aimed to keep this below 30% before applying for a Personal Loan.
If your credit utilisation ratio is incredibly high, you might be denied a Personal Loan. Restricting your credit utilisation is another easy way to prevent rejection of your Personal Loan application. If you have multiple, distribute your recurring expenses among your credit cards.
By doing this, you can show that you are not reliant on one specific credit card. This also helps your credit utilisation because it demonstrates that you can live a decent life.
You should not only use your credit card as little as possible, but you must also pay off all balances on time and in full. You may be charged interest if you pay off your credit card debt in smaller sums or installments.
However, when you apply for a personal loan, the lenders will be more confident in you because you have a monthly history of paying your bills on time. Make sure to pay off all of your debts on time to maintain a healthy credit history.
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Remember that lenders typically only lend to people with good money management skills. Therefore, if you have multiple loans, lenders might refuse to give you more money because they believe you won't be able to manage the money well.
Another reason is that having several loans reduces your credit limit and makes it more challenging to take on new debt.
A mistake on the application form is among the most absurd and frequent causes of rejection for Personal Loans. Keep in mind that most lenders use outside organizations to validate your applications.
They would immediately reject the loan application if they found a misrepresentation. As a result, be sure to check the loan application thoroughly and accurately yourself.
Before lending you any money, banks and other lenders prefer to see that you have a reliable source of income. They may therefore view you negatively for a Personal Loan if you have changed jobs too frequently in a short period.
Before requesting a Personal Loan, many lenders demand that you remain employed for at least three years. Keep in mind that different lenders have different eligibility requirements for Personal Loans. Thus, before you apply for a loan, make sure you speak with the lender directly and comprehend their needs.
Even though your salary might be your primary source of income, it's advantageous to show lenders any other sources of income you might have.
For instance, you should list these sources when applying for a Personal Loan if you have invested in monthly income fixed deposits, obtained monthly incentives or bonuses, indirect compensation, or have other static income sources. An additional income is always advantageous and significantly lowers your risk of loan rejection.
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Disclaimer: This blog is solely for educational purposes.
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