September 27, 2022
personal loan

personal loan

The term ‘Personal Loan’ refers to an unsecured loan that any borrower can apply for without restrictions on its purpose. Unsecured loans are often risky for financial institutions since no collateral is pledged. Therefore, considering this risk, these institutions have become very strict when offering Personal Loans, requiring borrowers to meet several internal criteria before approving a loan.

Personal Loans come in handy if you need emergency medical treatment or to pay off tuition or educational expenses for a family member. Getting an application denied during such times can be very distressing. 

If you have been denied a Personal Loan and are searching for ways to reapply, this article will provide you with some advice.

Know The Reason For The Rejection Of Your Loan  

You will be unable to determine what steps to take to improve your situation before reapplying for the loan unless you know the reasons for rejection. 

Upon rejection of a Personal Loan application, all the detailed information is sent to you within 30 days. The reason for the rejection of your loan application will be mentioned in your loan rejection letter. 

Various factors can cause denials of loans, including:

  • A credit score below average
  • Employment instability
  • Having an insufficient income
  • Having worked for a delisted private company
  • Ineligibility due to age
  • A resident of an address that appears on the list of defaulters 

If your understanding of the reason for the rejection is unclear or if you require more information, you may contact the loan provider. However, clarification regarding Personal Loan rates is necessary before moving forward. 

Evaluate Your Credit Score 

The approval of your Personal Loan depends on your credit score. However, if your score is on the lower end, you can still do some things to increase your chances of approval. 

  • To begin with, check your credit report for any errors. If there are any errors, file a dispute with the credit bureau. This can help improve your score right away.
  • You should also pay down any outstanding debt(s). This will improve your financial situation and make you more likely to be approved for a loan at favourable Personal Loan rates. 
  • Finally, consider applying for a secured loan. With this type of loan, you put up collateral (such as a savings account) to get approved. 

Make Sure You Meet The Debt-To-Income Ratio

Low income can lead to loan rejection. However, people with low incomes can apply for a lower amount while reapplying if they feel the amount applied for in their initial application is excessive.

Moreover, if your credit mix appears to be heavily dominated by unsecured loans, you might wish to clear some of your existing debts. Therefore, you must balance borrowings between secured and unsecured Personal Loan rates.

Ensure That You Have Up-To-Date Documentation

A Personal Loan is one of the most popular loans since there is little documentation required and the loan is processed quickly. However, Personal Loans generally require the following documents:

  • Identity proof 
  • Address proof 
  • A statement of income accompanied by supporting documentation 
  • A statement of your savings and salary account

Consider Alternative Options 

Banking institutions and other conventional lenders, such as non-banking financial companies (NBFCs), typically have stringent requirements for approval. This situation makes it difficult for self-employed individuals with low credit scores to obtain a loan.

If you urgently need funds, you may want to consider alternative lending options. Using alternative data enhances a person’s credit rating allowing them to extend their credit to a wider range of borrowers. There are also options such as gold loans or loans against a fixed deposit that you can consider.

Conclusion

It is important to note that rejection of a Personal Loan does not necessarily mean the end of your credit journey. Instead, it will further encourage you to understand credit better and resolve any issues that could arise if and when you need a loan for medical treatment.

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