Mistakes that can delay or decline your personal loan
Personal loans have become one of the best ways to deal with an immediate financial need. One of the biggest reasons for its popularity is the ease with which you can obtain these personal loans. There is no need for collateral in this type of loan. The interest rate offered by the bank for the personal loan will depend on the amount you wish to take a loan for.
While obtaining personal loans has become a simpler process than it was before, there are still a number of reasons banks can reject your personal loan application. Even if there are small errors in the details you provide, banks can reject your loan application. Banks generally reject loan requests due to a low credit score, PG accommodation, frequent change in jobs, late payments of EMI and so on.
There are so many personal loan options you can choose from. It is best to be cautious when you apply for a loan as small errors might have a big impact on your credit score and your loan application status. Listed here are some of the common mistakes to avoid when you apply for a personal loan:
- Making a lot of enquiries – People looking for a personal loan will generally look around to get the best deal available. You will be applying for the personal loan in at least 5 banks or lenders. It is advisable to not do this. This is because each time you apply for a personal loan with a bank or a lender, it will count as an enquiry in the credit report.
Higher number of enquiries increase the chances of rejection of your loan application. This is because lenders will consider that you have been rejected by all the other lenders. Such rejection of loans will have an impact on your credit score. No bank or lender is keen give loans to a borrower with a low credit score. Many of the big lenders generally do not consider any loan application for which two enquiries have been made in the past six months.
- Not revealing the loan purpose – The main feature of personal loan is that the loan amount can be used for any purpose. It is, however, best to reveal the reason for your loan application to the bank. Mentioning the purpose can help improve the chances of your loan approval.
- Not evaluating your repayment capacity – Whenever you apply for a personal loan, ensure that you plan for repayment of an amount slightly more than the EMI to be paid. This is to make sure that any unavoidable expenses will have not have an impact on your EMI payment. You can make use of tools such as EMI calculator available online to get better clarity of your finances.
- Receiving salary in cash or a cheque – If you are receiving your monthly salary as a cheque or in cash, you will not be having any proof of income to provide to the lender. This will reduce your chances of getting your loan application approved. Having documented proof of your source of income greatly improves the chances of loan approval.
- Job change in the last six months – A recent change in occupation will have an impact on your loan application status. This is because banks and lenders believe you might change your job soon. This increases the chances of loan default. Lenders will also not approve loans if you are currently serving a notice period. The loan amount will not be disbursed until you receive the payment of the first salary in the new company.
- Addresses not matching – There can be a delay in your loan application process if the address provided in the application form and the address in the proof do not match. Submitting the permanent address proof when you are currently staying somewhere else can lead to a delay or decline of the loan application. You can make use of the lease agreement of your current address or any utility bill as address proof for your temporary address.
- Not making use of credit card – The most important factor banks use to approve loans is the CIBIL score. This score is calculated based on your payments record. The main factor for determining the credit score is the way you use and pay your credit card. Many people try to avoid using credit cards unless there is an emergency. One thing to avoid is to own a credit card and not make use of it. This is because in such a scenario, the credit score will be calculated either as 0 or –1. Lending institutions will think twice before approving the loan application as they do not know how you would handle debt.
- Delayed repayments – Any payments you have missed in recent times can have a significant impact on your credit score. The impact of these late payments will depend on the time taken for repayments and how recent the delay in payment was. The policy on delayed payments vary from one lender to another but it generally does no favours to your loan application status.
- Approaching banks with uncertain loan amounts – Since loans are fixed and cannot be modified, you will have to evaluate all your needs before going to the lender with a loan. Try to make a list of all your monetary needs before going to a bank or lender for the loan. Approaching banks with unsure amounts will give the lender the idea that you cannot make the repayment. This will result in your application being denied.
These are some of the reasons banks/lenders delay or decline your loan application. Other reasons such as low income and a poor banking behavior record can also result in delays or even decline of your application. Banks and lenders will sanction only if they can be sure that you will be able to repay the loan amount. Keep these points in mind to ensure that banks or lenders do not decline your loan application.