Refused credit loans

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Refused credit loans

Did Your Loan Get Denied? These 7 Reasons Could Be Why

Getting rejected for a credit loan can be frustrating, especially if you’re in need of cash. Banks evaluate your ability to repay the loan based on several factors, including:

The bank assesses your loan eligibility based on a number of factors, including your monthly income, age, job stability, and most significantly, your credit report, which provides an accurate representation of your creditworthiness.

Knowing the reasons behind the rejection of your loan application can greatly increase your chances of being approved next time. Here are seven potential reasons why your loan request may have been declined.

1. Lack of job stability

One possible explanation for your personal loan being declined is that you have a history of changing jobs frequently. Banks place a lot of importance on income stability, and they usually require applicants to have been employed with the same company for at least four years. Additionally, in situations where a company’s future seems uncertain, the bank may refuse to grant loans to applicants who work for that company.

2. Invalid Loan Guarantor

If you have acted as a guarantor for someone in the past who failed to make payments, the bank may likely refuse your application for a secured loan. Therefore, it is crucial to be very careful when agreeing to act as a guarantor for someone else’s loan.

Only consider assisting individuals whom you have complete confidence in their ability to repay the loan

It’s crucial to verify that the person you are endorsing for a bad credit loan has the financial capability to repay the full amount without any difficulty. Unless you are completely convinced of their reliability, you should not act as a guarantor because if they fail to repay for any reason, you will be responsible for repaying their loan. And if you are unable to repay it on their behalf, your credit report will be negatively impacted as you will be reported to the CIBIL as collateral.

3. Excessive Debt

Lenders typically review your loan application with a focus on your debt-to-income ratio, which is the proportion of your monthly income used to pay off current debt obligations. While a personal loan can be a useful tool for consolidating debt or lowering interest rates, your chances of approval may be diminished if you already owe a significant amount of money.

It is recommended to refrain from obtaining a new loan if you already have a significant amount of debt

A frequent cause for personal loan denial is a track record of outstanding and excessive debt. Generally, individuals who are using 40-50% of their income to repay debts are regarded as unsuitable by personal loan providers. Since you will be considered as a high-risk borrower, the lender will question how you will fulfill the added loan responsibility with your existing financial situation and limited income.

4. Your residential address is Same as a Defaulter

If you are residing with someone who has defaulted on their loans or credit card payments, and their address has been registered in the bank’s list of defaulters, then your address may also be flagged by the bank’s system. As a result, even if you have no history of defaulting on payments, your application for credit may be rejected due to the association with the defaulter’s address.

5. An unimpressive credit file

An unimpressive credit file is a frequent cause of loan rejections. Establishing a good credit score is crucial to obtain a loan. To achieve this, you must make regular debt payments, or any other form of debt. If you are struggling to obtain a personal loan and have insufficient credit experience, consider applying for a credit card as an alternative.

Depending on your situation, there are two different types of credit cards available

There are two categories of credit cards: secured and unsecured. Secured credit cards are meant for people with poor or no credit, as they mandate a cash deposit as a credit limit, to be approved. This type of card can aid you in building a positive payment history and increase your chances of being eligible for a personal loan in the future.

6. Your Credit Report Has Errors

Mistakes in credit reports are surprisingly common, and they can impact your chances of getting approved for a personal loan. As per a recent study, up to 25% of consumers have at least one error in their credit history. Reporting errors such as incorrect payment reporting and abnormal credit card account status can affect your personal loan eligibility. Late payment inaccuracies are particularly harmful as they can lower your credit score.

If you come across an unexpected error in your credit report, it is advisable to seek assistance from professionals.

If your loan application is rejected, it’s worth reviewing your credit report for any errors. If you notice any inaccuracies, you should contact the credit bureau to initiate a credit inquiry.

7. Your loan application has been declined previously

Applying for a loan without proper consideration is unwise. Every time your personal loan application is declined, it is recorded in the CIBIL report. To avoid this, it is recommended to carefully evaluate the pros and cons of submitting a personal loan application at multiple banks simultaneously. Wait for an offer before submitting applications to other banks. This approach allows you to rectify errors and update your credit record before approaching other lenders. Alternatively, you can explore online loans that don’t require a credit check, depending on the lender.

Minor details can make a significant difference

Getting a loan can be a challenging process, and even seemingly insignificant information can affect the decision of the loan provider to approve or reject your application. Forgetting to include important details such as your employment history or income source can harm your application without you realizing it. It’s crucial to review your loan paperwork carefully and follow up with the lender to avoid any small mistakes that could ruin your application. However, if you require an urgent loan, you may want to consider looking for a no-refusal loan option to help you out of unexpected situations.

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