Reasons why personal loan applications find the bin

Jul 29 2014, 01:21 IST
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SummaryPersonal loan is not only one of the most common forms of borrowing for many individuals, it is also becoming an important part of the loan portfolio for banks.

Personal loan is not only one of the most common forms of borrowing for many individuals, it is also becoming an important part of the loan portfolio for banks. However, there are many instances of rejection of personal loan applications. Here are some possible reasons.

Poor credit score

Credit information bureaus maintain records of every borrower’s credit history. The most popular among these bureaus is Cibil. It updates its records and presents a credit information report on each borrower whenever a bank or a financial institution needs it. Banks disburse loans on the basis of this information. In addition to your credit score, the report has a list of all your credit-related transactions and payments on all loans across different banks. It also has information on your enquiries if you simply make an application for a loan or credit card. If banks find that your credit score is poor or your repayment history is not up to the mark, then your personal loan application could be straightaway rejected.

Past defaulter

Each bank may draw up a list of defaulters or prohibited borrowers to whom they will not lend. This can be based on various factors. For example, your house address may be on the defaulters' list if the previous occupants were defaulters. Certain types of jobs that do not guarantee a regular income could be a no-go area for banks. In such cases, your personal loan application will not go through.

Too many loans

Your loan-to-income ratio is calculated by banks before granting you a loan. All your present liabilities and corresponding EMIs paid are taken into consideration. Since personal loan is unsecured, banks will give extra importance to your capability of servicing it. If they find that your loan book in relation to your income is high compared to the usual norm, your loan application could be rejected.

Loan guarantor

Forget serviceability of your own loan; if you have been a guarantor to someone else’s loan, but have not paid it when that borrower defaulted, this will also show up in the Cibil report. You will be treated as someone who has not been able to service a loan and your loan may not be granted. It is important to think twice before becoming a guarantor.

Past rejections

If your earlier application for a loan or a credit card in the same or any other bank has been rejected, your current application also may not go

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