Have you ever applied for loan and rejected?
Do you want to know what makes your case strong enough to be qualified for loan?
Your loan is disapproved only when the bank considers your loan case as ‘weak’. So it is useful to know in advance about the factors that make your loan case weak and eventually the probable reasons for rejection.
Now think from a banks perspective for a while, to understand the possible reasons for loan rejection. Suppose you are a money lender and you lend some money to an individual as personal loan. Before you make provision, you would like to make sure that your loan is paid back in time. You will make some calculations based on your personal experiences such as,
- Who could repay your loan with ease (stable income)
- Who will be in touch with you and will not relocate/disappear without informing you (accessibility)
- Who is trustworthy and will not cheat with you (previous record)
Similarly the banks are concerned about the above points and want to make sure that the loan applicant is able to clear the EMI regularly. Now let us discuss the key reasons for rejection of loan.
The minimum income required to be eligible for loan varies according to the bank you are applying to. For instance, HDFC will require minimum Rs. 15,000/- take home salary to be eligible for personal loan. Kindly note here that the bank considers only Net Take Home salary when they refer ‘income’ in their form and not variable salary, incentives, bonuses etc. which you might add as your income.
2. CIBIL Score
This is the most talked issue when a loan is rejected. In order to simplify the concept, we will return to our example where you are lending money to your not so close friend. How would you ensure that your friend is trustworthy? Through your mutual friend; right? A mutual friend who knows the behaviour of this person. Similarly CIBIL is an institute which records behaviour of all the borrowers in terms of points/scores and makes it available for banks whenever requested. Your unpaid credit card bills, delayed EMI, frequent CIBIL report generation requests (initiated by bank when you apply for loan) etc. results in reducing your credit score.
3. Income Security
Your good monthly income is not enough to satisfy the loan criteria. Remember you are going to pay the EMI for next 5 to 20 years and here the security factor comes in. There are some occupations identified as insecure and banks are sceptical about their future. Therefore applicants belonging to these occupations may be avoided by the banks (blue collar jobs, jobs with high employee turnover ratio like insurance, pharmaceuticals, BPO etc).
4. Age Limit
The age limit in general to be able to opt for loan is min 21 years and max 59 years.
5. Utilization of Fund
This is one of the lesser known reason for loan rejection. The most common utilizations of personal loans are home renovation, vacation, marriage etc. If you apply for personal loan to set up your business, it contradicts to the point C – the income security. Remember the fact that bank consider your income as stable based on your current job salary and not your future business growth.
The minimum salary required for loan is decided based on the applicant’s company category. The companies are categorised into CAT A, CAT B,CAT C,CAT D in terms of size and industry. The salary requirement is min for CAT A and max for CAT D (since people working in CAT A are considered more stable).
Some banks follow this criteria. Minimum graduation is required to be able to apply for loan.
8. Residential Stability
Your KYC documentation take care of this constraint. Your current as well as permanent address proof is collected to carry out the loan process. In case you are living on the rent basis, banks may ask to provide some extra details to confirm your stay in the city.
These are some of the facts that cause disappointment. I hope this helps to clear some of your queries about loan rejection and why all these banks ask for certain details before processing your loan. Let me know if you have any more doubts in the comments below.
Deals of Loan is a leading loan service provider in Pune, India. We facilitate all kind of loans, credit cards, balance transfers from over 30 banks and NBFCs.