Personal loans are unsecured loans that have no restrictions on how they may be used by the borrower. Since banks and NBFCs lack the security of an asset that has been pledged as security, unsecured lending is risky for them. Due to this risk, banks have tightened their lending standards and have numerous internal requirements that must be met before any personal loan is accepted.
Personal loans are frequently used in urgent situations, such as paying for a family member’s medical bills or paying for their schooling. When credit is refused when you most need it, it hurts a lot.
This post is for people who have had personal loan applications denied and are seeking strategies to reapply.
1. Discover the cause of personal loan denial.
It will be difficult for you to know what efforts you should take to strengthen your position before reapplying for the loan if you don’t know the reason why your application was rejected. Within 30 days, lenders must give you information about a personal loan denial. Your loan application was denied, and you will receive a letter explaining why. The following are some typical explanations for loan denials:
- Low credit score
- Unstable employment
- Insufficient income
- Working in a delisted private company
- Not falling into the age limit
- residing at a location that is on the defaulter list
Contact the lender using the information provided on the letter if you are unable to understand the cause or if you require more clarification. Prior to taking the next action, gain clarity.
2. Evaluate your credit score
The basis for approving or rejecting any loan is the borrower’s credit score, which is significant. Lenders only assess your income and repayment capabilities after you have cleared the credit score barrier.
Since personal loans are unsecured loans, it’s critical for applicants to have a strong credit history in order to get approved. You can check your credit score here if you’re unsure of it. Examine the causes of your low credit score if you have one. It can be because of mistakes on your credit record or because of the way you handle credit.
Your credit report’s errors may be contested. Find out how to properly challenge mistakes on your credit report. If a clerical error, such as a name that is misspelt or anything similar, is the cause of the problem, these minor errors can be fixed, and then you can reapply for the personal loan.
If your score is poor, you should first take care of your bad accounts. Once the issue has been rectified, you can raise your credit score by using score-building items, such as loans or credit cards. Additionally, since there is less risk involved, banks are more likely to grant secured loans or credit cards. At the same time, watch out for missed payments and utilise your credit card within the permitted range of 30% credit utilisation.
3. Check Your Debt to Income Ratio
The loan may occasionally be turned down because of low income. You can submit an application for loans that are made available to those with lower incomes in this situation. If you think the amount requested in the initial application is on the high side, you might consider reapplying with a lower amount.
If you believe your credit mix is more heavily weighted toward unsecured loans, you could also wish to pay off some of your current debt. The right balance of secured and unsecured borrowings is what lenders seek.
4. Get documentation correct
One of the most popular types of loans is the personal loan since they require less paperwork and are handled more quickly. Documents are important for personal loan eligibility. The following documents are typically needed for processing personal loans:
- Document Proof for Identity
- Document proof for Address
- Documents in support of income
- Bank statements
If your documents are in order, confirm them with your lender one more. If not, you could manage their structure before reapplying for a loan.
5. Look for alternate option
It can be challenging for self-employed people and those with poor or no credit scores to get approved for loans because traditional lending sources like banks and financial companies like NBFCs frequently have tight lending requirements.
You might search for alternate financing choices if you lack time and urgently need money.
Numerous fintech lenders operate in the loan industry and target low-income, self-employed, and poor credit score populations. They lend to a larger range of people because they use alternative data to complement a person’s credit score.
If you are still having trouble getting a personal loan. You might want to look at our selection of loans that are designed with people with different credit scores in hand. Rejection for a personal loan does not necessarily spell the end of your credit journey; in some cases, it can even prove to be a blessing in disguise that helps you improve your credit knowledge and address any problems that might arise during a more serious emergency.