6 mistakes that can lead to rejection of your personal loan application
A personal loan has been one of the most popular loan options in the lending industry, especially for people requiring urgent funds to meet various financial shortfalls like medical emergencies, home renovation, etc. The key drivers behind such popularity have been no restriction on end-use of funds, quick (sometimes near-instant) disbursal, minimum documentation requirement, and zero collateral or security requirement. However, although all these aspects clearly indicate the key features of personal loans of most lenders like SBI personal loans, the unsecured nature of these loans often leads to lenders taking up a cautious approach when approving applications.
Hence, to avoid the application from getting rejected, ensure to not commit these mistakes when availing it:
Not reviewing your credit profile
One of the first and foremost filters checked by lenders for assessing personal loans is their credit score. Those having credit scores of 750 and above generally have higher chances of getting the loan approved, as they are considered more disciplined and, therefore, carry lower credit risk for lenders. Some lenders also tend to offer preferential interest rates on these loans to those having a higher credit score. At the same time, those possessing a poor credit score may either face rejection or lenders levy higher interest rates to make up for higher credit risk for the lender.
Hence, adopting healthy financial habits such as timely repayment of your EMIs and credit card bills, maintaining a healthy credit mix, containing your credit utilization ratio within 30%, and monitoring co-signed loan accounts can assist you in building and maintaining a strong credit score.
Failure to choose the right loan tenure as per repayment capacity
Lenders factor in applicant’s personal loans repayment capacity while evaluating their loan applications. The requirement in terms of eligibility here is that the applicant’s monthly EMI obligations (including new EMI) should ideally be around the mark of within 50% of net monthly income. Therefore, applicants should ensure to choose the personal loan tenure that keeps their monthly repayment obligations within this range. Keep in mind that applicants with higher repayment obligations generally tend to have lower chances of getting their personal loan application approved. Those having higher repayment obligations should opt for a longer repayment tenure, as doing so would reduce the EMI outgo and hence, increase both the EMI affordability as well as loan eligibility.
Not comparing amongst various prospective lenders.
With lots of lenders like fintech, NBFCs, and banks like SBI personal loan
offering personal loans, this loan’s interest rates tend to a wide range, making it imperative for prospective borrowers to compare the personal loans offered by as many lenders as possible before selecting any. Hence, start your loan search by contacting the fintech, bank, and/or NBFCs with whom they have existing consumer relationships for their personal loan features. Then, follow it up by visiting online marketplaces to compare the personal loan options available from other lenders basis your credit score, income, employer profile, job profile, etc. While comparing the various options, do not restrict your comparison to just the lender’s interest rates. Do not forget to compare other loan features such as tenure, processing fees, loan amount, prepayment charges, etc., before selecting any particular lender for submitting the application.
Submitting loan applications to multiple lenders
Whenever you apply for a loan with a bank, the bank or lender fetches your credit report from the bureau to check your creditworthiness and repayment behaviour. Such lender initiated credit report requests are named as hard enquiries by the credit bureaus, all of which gets added in your credit report and pulls down your credit score by a few points.
Moreover, submitting multiple enquiries within a short span of time can depict you as credit-hungry, which may lead some lenders to reject your personal loan application. Hence, instead of directly submitting loan applications with multiple lenders, visit online financial marketplaces to select the optimum personal loan offer amongst multiple loan options. The credit report requests generated through online financial marketplaces are considered soft enquiries, and they do not impact your credit score.
Making frequent job switches
While evaluating your personal loan eligibility, another parameter often considered by many lenders like SBI personal loan is the applicant’s employment history and stability. Since the practice of frequent job-hopping may be considered as a sign of career instability by the lenders, they may hesitate in lending to applicants who tend to frequently switch their jobs. Hence, try to avoid frequent job-hopping, especially if you are planning to take a personal loan within a few months.
Not paying heed to alternative loan options.
When thinking of availing funds from options like SBI personal loan to fulfil financial shortfalls, it’s crucial for people to take into consideration other possible loan options like the gold loan, top-up home loan, loan against securities, loan against property, loan against FDs, etc. Just like personal loan options like SBI personal loans, these options do not involve any end-usage restrictions. More often than not, some of these alternative loan options usually involve relatively lower interest rates as well as longer repayment tenure vis-a-vis personal loans. Hence, to ensure to avail the most suitable loan option as per fund requirement and repayment capacity, it becomes imperative to compare various available and feasible loan options before zeroing in on any.
Borrowing more than the requirement
Another grave financial mistake many people tend to commit when taking personal loans is borrowing more than the actual requirement. This holds true especially for those having higher repayment capacity, who get tempted to avail a larger amount of loan upon knowing their high loan eligibility. Such people tend to forget that availing loans, especially relatively costlier ones like personal loan, involve interest cost which needs to be repaid along with the borrowed principal. The higher amount you borrow, especially beyond actual requirements, the more additional interest cost you incur, thereby taking away a higher amount of money from your pocket. Over-borrowing can even push you towards straining your financial health to repay the borrowed loan, thus causing a possible threat of increasing the risk of default. Hence, ensure to borrow only the amount you require and would be able to repay comfortably.