One of the necessary eligibility criteria to avail a personal loan is a high credit score. Financial institutions prefer individuals who hold a credit score of 750 or more to offer their products or services.
You can check credit score online for free once every year from CIBIL’s official website. The company enables multiple checks in a year through their paid subscriptions.
It is essential that you know your credit score before you apply for a personal loan. Applying with a low CIBIL score will make the lender reject your application. Each such rejection will lower your credit score.
However, a financial institution can also reject your loan application even if you hold a high credit score.
Some of the reasons for such rejections include:
1) Applying for Unreasonable Amount
You may have a high credit score if you are a responsible credit card user. Credit cards are one of the fastest and quickest ways to improve your CIBIL score. Check your free credit score in India if you hold a credit card.
Now, lenders can deny a loan if they deem you will not be able to repay the amount applied for even if you hold a high credit score. This situation can arise if you have a low income.
Hence, it is best to use a personal eligibility calculator before you apply. This calculator tells the loan amount you are eligible for based on your income, monthly obligations, and existing loans, among others.
2) Erroneous Credit Report
Most of the individuals check their online CIBIL score but ignore their credit report. The credit report also plays a vital role in loan approvals as lenders assess it thoroughly.
Your credit report may contain an error that can lead to rejection of your application. These mistakes might from the end of the financial institutions or from CIBIL itself although rare.
Also, entries caused due by your credit mismanagement may also cause a lender to deny you a personal loan. For example, you may have paid an earlier loan EMI after the deadline, paid the minimum amount due on your credit card, asked your loan provider to lower the interest rates in the middle of repayment, etc.
Additionally, a lending institution may also deny you a loan if you have already faced rejection before. In such cases, it is best to know your CIBIL score and look for other ways to increase it before you apply for a new loan.
3) High Debt-to-Income Ratio
The debt-to-income ratio or Fixed Obligation to Income ratio (FOIR) is the ratio of your monthly income and debts, which include credit card bills and existing loan EMI.
Lenders may deny your personal loan if the ratio is above 50% – your monthly obligations are more than 50% of your income. A high ratio means you don’t have sufficient cash in hand remaining to address other necessary expenses after paying your debts.
Hence, perform a CIBIL score check online free and clear your existing debts before you apply for a personal loan from NBFCs.
Bajaj Finserv is an NBFC that provides personal loans of up to Rs.25 lakh within 24 hours against minimal documentation and eligibility criteria.
Other than the above, being a guarantor to a defaulter, unstable career, and frequent borrowing are some other reasons that can lead to loan rejection.
Make sure you learn how to check credit score online and also your credit report to stay updated on the developments. Plan and manage your financial future wisely with proper credit management and enjoy the best features on benefits from lenders.