Has your loan request been rejected? Here's why it happens and how to avoid it

Facing loan rejection can be a frustrating experience, especially when you need urgent cash for an unpredictable event. This is a common hurdle faced by many people. Understanding why your loan request was rejected is the first step to securing a loan. Here are a few common reasons as to why your loan may have been rejected. 

Poor credit score/ CIBIL score

A credit score is a three digit number that ranges between 300 and 900. This score lets lenders know how likely you are to repay your loan in a timely manner. If your credit/CIBIL score is below 750 you are generally considered risky, raising red flags about your ability to manage debt responsibly. This is not the end of the world, there are many ways to improve your score. To check them out click here. Find out what your credit score is before applying for a loan through a bank. Click this, to check your CIBIL score. 

Your Job Profile

Lenders want to know how stable you are in your job when you apply for a loan. They check how often you have changed your job, how much you make before giving you a loan. All this information lets the lender know if you will have enough money in the future to pay them back. Frequent job changes or gaps in employment can create doubts about your income consistency and ability to repay the loan. Aim for long-term employment or provide strong documentation of alternative income sources if applicable.

If you have already taken on too much debt

 If you have already taken on too much debt in the form of other loans or from credit cards, lenders might think you will not be able to pay another loan if you take it. If you want to know if you have too much debt do this one simple thing, divide your total monthly debts payments by your total monthly income and multiply into hundred. If the number you get is above 50 you have taken too much debt. We recommend you repay some of your debt and bring this number below 50 before applying for new loans. 

Not providing all the necessary documents:

Incomplete or inaccurate documentation can be a deal breaker. Ensure all documents, including income proofs, address proofs, and bank statements, are complete, valid, and match the information you provided in your application. Double-check everything before submitting to avoid unnecessary delays or rejections. To learn more about the documents required to apply for a loan click here. 

The eligibility criteria: 

Different loan types have specific eligibility criteria based on age, income, location, and loan amount. Not meeting the minimum requirements set by the lender for your desired loan will automatically disqualify you. Carefully research and choose a loan that aligns with your profile. 

Here are some other things that banks may consider before giving you a loan. 

Banking history: A consistent and responsible banking record reflects positively on your application.

Reason for the loan: Transparency about the loan purpose helps build trust with the lender.

Negative information on your credit report: Address any discrepancies or errors promptly.

Safe alternatives to bank loans: 

Loans against LIC policy: If you have an LIC policy you may be able to get a low interest loan with flexible loan repayment terms without facing any of the issues mentioned above. Consider a loan against your LIC policy as a secured and relatively low-interest option. Click here to check our LIC Surrender Value Calculator to see if you are eligible for a loan and how much. 

Remember: Avoid taking urgent loans and informal loans from untrusted people as they may charge extremely high interest rates with very bad collection practices. If your loan request is rejected by one bank DO NOT go to any other banks till you fix all the reasons to why your loan has been rejected. This is very important because all banks keep track of your loan requests and if there are too many rejections against your name you will decrease the odds of getting a loan even more.  By understanding these reasons, exploring responsible alternatives like LIC policy loans, and taking proactive steps to improve your financial profile, you can increase your chances of loan approval and move towards your financial goals with confidence. Remember, knowledge is power, and informed financial decisions lead the way to a better future. 

Micah Parambi

March 11, 2024

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