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Personal loan Approval/Rejection Reasons

The Indian economy has grown enormously in the past few years. The number of people availing personal loans to meet their financial and personal requirements has increased swiftly.

This sudden growth has affected the personal finance sector too as the number of individuals applying for an instant personal loan has been increasing steadily in India.

An instant personal loan for self-employed and salaried individuals is both made accessible by lenders. Before applying for a personal loan, make sure to compare personal loan interest rates so that you can opt for the one that is the most suitable for you.

Credit score is a primary indicator of creditworthiness. A good credit score is considered important to get the loan approved from any bank or other financial institution. But sometimes despite having a good credit score, the loan application may get rejected.

This is because lenders may also consider alternate factors to lend money.

Lenders work with external data sets (utility bill payments), mobile-based data (usage insights) and income sources (bank statements) to determine creditworthiness and repayment risk factors about existing and future customers

Here are some of the factors that lenders may consider apart while approving or disapproving your personal loan application -

Monthly Income

This is the most important criterion for loan application screening. The lender evaluates the repayment capacity considering income, stability of income source, number of dependents etc.

Debt to Income Ratio

This is another aspect considered while approving a loan application.

The chances of new loan approval are higher if the borrower's total existing EMI repayment amount is much less than 50 percent of their monthly salary.

Age

The age of the borrower is considered to determine the financial stability and loan tenure. Many times, individuals of higher age bracket (more than 60 years) do not get approved for a loan.

Work Experience

Most of the banks and NBFCs ask for a minimum of two years of working experience to minimise the risk of default.

Job Changes

Frequent job changes is considered a sign of an unstable career and hence, such individuals are regarded as less creditworthy, say experts. For availing a long-tenured loan, one must avoid too many job changes for sometime.

Other Factors

Lenders may also consider the collateral and margin amount while applying for a secured loan. Also, the credibility of a co-applicant is a prime factor for evaluation in case somebody wants to avail a joint loan.

To assess ability to pay, some lenders may even require employers' profile and vintage of employment. Others may also ask for a postpaid/prepaid mobile service provider account, the type of car owned, and type of house used to live

The demand for personal loans has been spiking up with each passing day. With the increased cost of living, individuals are raising the bar for luxuries. Earlier, only people with a robust financial background could afford a personal loan. Now, everyone can avail it. Apart from all the reasons mentioned above, a personal loan can be used for improving your CIBIL score.