Personal loans are considered as immediate solution for cash requirement on urgent basis. Unlike car or home loans, personal loans serve as one of the simplest loans due to lack of collateral requirements and limitations to spend cash. Personal loan can cater to various needs such as paying bills for medical emergencies, holidays, or even paying down payment for a vehicle or house. In addition, an individual can purchase furniture, gadget, or equipment for business through using personal loan.
However, personal loan come with specific limitations. As it requires no securities, banks rely on a set of criteria to review a personal loan application. To receive an approval, you need to consider some factors when applying for a personal loan. Since vehicle and home loans follow a careful process of selection and considerations, personal loans are not pre-planned by nature. Having said, it is essential that your personal loan application receive approval at times when you are in need of cash.
Do Remember: Rejection of personal loan application can affect future applications significantly.
To provide you with more possibilities and chances for loan approval, we have gathered the vital factors that you should consider when applying for a personal loan. Read along to avoid rejection of personal loan:
When applying for a personal loan, many applicants tend to portray themselves financially stable and provide incorrect information to lenders. However, you need to ensure that you provide accurate personal and financial information on loan application. In case there are any inconsistencies on your application, chances are that you will face rejection. You can correct any mistake in your name, address, contact number, and more information.
Moreover, your past loan accounts may comprise some reporting issues. It is essential that you go through credit report and make sure to rectify mistakes as they can lead to reduced credit score. By giving correct information, you get more chances to receive personal loan.
Applying Too Many Times
It is not wise to apply for a loan from various sources at the same time. It highlights that you have more expenses than your income, and you are trying to make the ends meet by applying to various credit sources. Lenders are often concerned about if an applicant becomes unable to payback loan, and this can trigger them to reject your application.
Interestingly, every credit application serves as hard inquiry. If you make various hard inquiries, then you do not bode well for a good credit score, giving an impression of a credit hungry person to lenders. Thus, you should only apply for a credit when you need it genuinely rather than applying at every instance.
Current Loan Profile
If you already have various loans, then another loan will put an additional burden on your income. In case a lender gets into impression that you will not be able to withstand another Equated Monthly Installment (EMI), then your application will perhaps receive a rejection. It is suggested that you aim for as low EMI as possible for more chances of loan approval. Though it may appear easy at first to pay too many EMI, but uncertain circumstances can lead to delayed repayments. In addition, higher debt to income ratio can affect personal loan application.
If you are up to get a new loan, then it is essential to close previous loan accounts for hassle-free tracking of payments. Also, you can consider a provision of debt consolidation to consolidate various loans into a unique loan, helping yourself to keep a track of various payments and saving on interest.
A decent credit score plays an integral role in loan approval. It is suggested to maintain a reasonable credit score of about 750 and more for more chances of approval. If you are applying for a personal loan, then we suggest that you check credit score and request for a latest credit report. As personal loan does not require any security, banks are concerned for security of their money against possible client default. The only consideration for their decision is income statement, salary slip, or credit score.
The lenders often rely on credit score and report to analyze your record of employment. If you have a low credit score, then your application might be rejected as it shows that you were not responsible in maintaining credit earlier. You need to ensure that you improve your credit score and maintain it around 750 before applying for a personal loan.
Personal loan approval depends on various factors that we have mentioned. Personal loan can come into handy in various situations. For instance, if you need to pay medical bill for an unexpected emergency, but you do not have enough money, then personal loan can help. However, if your loan is rejected, then it will only add more to the trauma at that time.
In case you were responsible with credit in past, then you will have more chances to receive personal loan. Essentially, when you receive loan, you should behave in the same manner in term of paying back, staying credit healthy at all times.
We have revealed the factors that you should consider when applying for a personal loan. Although there might be more factors to consider, but the ones mentioned in this article play a key role in receiving approval for personal loan.