Major Reasons for Loan Rejection Other Than CIBIL

‘We regret to inform you that we are unable to process your loan application…’

Unfortunate right?

These words feel more irksome when they drum out loud despite a credit score that clearly shows 750. If you are one of those loan applicants who applied for a credit solution carrying a competent credit score and ended up with an email reading rejection then it leads to an array of questions on what could possibly go wrong. There are more than two or three loan rejection reasons other than credit score and it is essential that you are aware of them to not let this event ever occur again.

In this article, we shed light on all the reasons why a loan gets rejected despite a good credit score. Read on and you will be able to prevent this circumstance the next time.

Reasons Why Loan Gets Rejected Despite a Good Credit Score

Numerous Loan Applications

Little does it occur to you that applying for multiple loans stubbornly will only drag you away from getting any of your applications getting accepted. When you seek the same loan from different banks or NBFCs, then you start appearing as a frequent inquirer to the eye of CIBIL. This is one of the events when your credit score will give you no hand in bringing a smile on your face, no matter how badly it wants to.

Multiple Debts

There are events when your loan application gets rejected irrespective of your time-sincerely payments of previous loans. As frustrating as it may sound, if you have indulged in a number of loans during the previous year then, sadly, you will not be the preference of lenders. No matter how pristine your credit history looks on the surface, you will still have to experience the feeling of hearing a no. It is because you are put into a high-risk category because of the number of loans you have availed of. In this case, even a good credit report fails you.

Mixed Types of Loans

Did you just have a mix-up of secured and unsecured loans? If yes, then treat it as one of the reasons for the loan getting rejected. Secured loans are provided in exchange of certain collateral and thus, they are considered to be a less risky kind of loan. On the other hand, unsecured loans have nothing to do with collateral and are availed based on credit assessment which is why they are riskier.

If you have multiple loans and the majority of them are unsecured ones then lenders may take no time to reject your loan application. It is because you are considered a high-risk borrower who can default the loan. So it doesn’t really make any change even if you have a mind-blowing credit score in this case. The only way to make sure this reason does not get excruciating is to opt for secured loans.

Inadequate Tax Payment Record

One of the reasons why a loan application gets rejected despite a good credit score comes from the income tax returns. Individuals who are consistent in honoring their income tax returns are preferred by banks and NBFCs the most. You need to show at least two years of devotedly filed IT returns before you even try to convince the lender. Income tax returns filing has a directorial role in this regard as it is a factor representing your creditworthiness apart from the CIBIL™ credit report.

Debt Overburden

If you are still on your way to clearing your existing debt from your declared income then banks are not going to take your loan application into consideration. In case of the existing multiple debts, banks and NBFCs will consider you as overleveraged and will not approve your application for a new loan. Let’s understand this by simply with this example –

• Your income is INR 65,000.
• You have three existing loans and you have three loans for which you pay INR 15,000 each.
• In the end, you are left with INR 20,000 which you will be using for your personal expenses.

In this case, your Debt-to-Income ratio (DIT) will not be able to advocate your application and the lenders will take you as a risky applicant.

Default on the Part of Guarantor

One of the possible reasons that could drain your loan application to rejection is the default in your role as a guarantor. If you have signed up as a guarantor for a loan that is defaulted then it will eventually affect your CIBIL score and credit report. This will result in lenders rejecting your application.

How to Increase Your Chances of Getting a Loan Approved Easily?

Loan rejection can inflict real pain especially when you need it on an urgent basis. Thankfully, there are certain ways that can help you better your chances of getting a loan easily. Let’s find them out.

Avoid Multiple Loan Applications

Have you been indulging in applying for a loan with different lenders simultaneously? If that’s the case then don’t be surprised when your loan application gets rejected. Applying for multiple loans with different lenders, hoping to have at least one of them approved will only sink your ship. Doing so makes you appear desperate for credit, which forms the wrong impression that you want more than one credit line to meet your expenditures. Furthermore, when your application doesn’t get approved for any of the loans, your credit score begins to come down which is not a sound-good thing.

At Least Wait for 6 before Applying for Another Loan

One of the best ways to increase chances of getting a loan easily is to wait for at least 6 months before you apply for another loan. Frequent applications can lead to your lender suspecting your ability to make repayment. Unless it is too urgent to wait on, you should wait a minimum of 6 months before applying for another loan as it will increase your chances of getting a loan.

Think Before You Decide on a Lender

It is imperative to do your research on different lenders before you finalize your lender. You should not jump to one name unless you have compared various banks or NBFCs. You will even find lenders that have offers for high-risk borrowers and you need to be extra cautious on that note if you are seeking them due to your low credit score. It is advisable to avoid hefty payday or title loans and don’t be carried away with compelling loan offers that make you think that you are the luckiest individual out there.

Pay Attention to Your Debt-to-Income Ratio

The ideal spend limit toward EMIs is not more than 40% of the income. If you are earning INR 35,000 per month, you should not pay beyond INR 14,000 for your EMIs. Your debt-to-income ratio is your monthly debt divided by the gross monthly income you earn and it is best to maintain it as minimum as possible. To do that, you can avoid borrowing more unless it’s necessary otherwise you will have a hard time getting a loan that, frankly, you can’t afford.

Final Thoughts

Getting a loan can get nerve-tedious when you have even a single aperture against the eligibility criteria. The worst thing is that you have to face rejection even while you tune in well with the lender’s criteria of the loan. You may trace the reasons why it happens. If you don’t want to ever come across this stead, then it is best to focus on your financial planning with diligence.

Frequently Asked Questions (FAQs)