Among all the types of loans made available by financial institutions or NBFCs, the most interesting is the personal loan which by its very nature, is available to anyone for any personal purpose. Normally given without collateral, personal loans carry higher rates of interest and the risk element is much higher here. The incidence of rejectionis among the highest when it comes to personal loans for various reasons as under.
Bad credit history
All lenders look to safeguard their interest by way of ensuring prompt repayment by checking the repayment capacity of the borrower. While documents provided give an indication of the borrower’s profile, a clearer picture regarding his creditworthiness is available more accurately from the credit reports that all lenders study closely. A history of poor credit card payment, irregular EMI payment on other loans as well as too many liabilities throw a red flag on the borrower’s financial health and will be a clear indicator against his creditworthiness and lenders will not hesitate to reject the application for a personal loan.
Age
While most banks and other lenders adhere to some strict age limits, some lenders do make an exception even beyond the stipulated upper age limit of 65, only if the source of repayment is encouraging by way of a steady income from a reputed concern.
Collateral
While a personal loan is collateral free, exceptions are made in eligibility by taking collateral in the form of property or equipment so that the loan is more secured with a better hold on the lender’s assets. Disputed collateral can go against approval of the loan.
While these are some of the reasons for non-sanctioning of personal loans, a look at the purpose for which such loans can be availed of will also lead to how rejections can be avoided. A personal loan is granted for any general purpose such as a wedding, house renovation, and holidays or even to improve one’s credit rating by paying off a credit card outstanding which has a much higher interest rate than that of a personal loan. The end use while is rarely questioned, mere profligacy after a loan is obtained will be frowned upon.
While most borrowers show their repayment capacity by way of salaries from reputed organisations, some borrowers use the personal loan to run a side business assuring a higher cash flow. Most such borrowers pay their instalments on time.
What to do after loan rejection
If a personal loan application is rejected, the borrower can re-apply either with some collateral or even by getting a co-borrower with better credit rating. Some agree to make a larger down payment, thus effectively bringing down the EMI burden. Most lenders lay down clear criteria on length of service, minimum salary etc. for salaried borrowers while ITR for previous years is sought from non-salaried borrowers.