A Personal loan is considered as a way to resolve the problem of the immediate requirement of cash. It is considered as a conventional loan to apply for personal loans since the borrower is not required to provide any collateral and he is free to use the money in any way which he likes (unlike a home or auto loan.)
However, this flexibility comes with a few restrictions. For example, since there is no collateral or any security which is involved in a personal loan, the banks have a certain set of criteria when they review the personal loan application. If the borrower is aware of these factors, then he can avoid personal loan rejection. However, various factors are influencing personal loans.
Things to keep in mind before taking a personal loan
Good credit score
- It is always advisable to have a credit score of 750 and above so that the borrower has a good chance to approve his application.
- If the borrower is planning to apply for a personal loan, then he must obtain a copy of his latest credit report and should check his score.
- Since a personal loan does not require any security, banks are anxious to safeguard their money against any customer default.
- They rely on the credit score and the credit report to check if the borrower has a good record of repayment.
- If he has a low score, there is a chance that his application will be rejected outright.
- The borrower must make sure that he improves his score to at least 750 if required before he applies for a personal loan.
Have sufficient income
- Again, due to the lack of any collateral, the lenders look at the borrower’s monthly income to see if he will be able to repay his loan.
- If the repayments on his loan amount cannot be sustained on his income, then there is a good chance that the application of the borrower would be turned down.
- The borrower must, however, make sure that he applies for an amount that is commensurate with his repayment capability.
Provide correct details on your credit report or loan application
- The borrower should make sure that all the personal details for a personal loan on his credit report and his application are accurate.
- If there are any inconsistencies, his application would be rejected.
- If there are any mistakes regarding
- The name
- PAN number, or any other details on his credit report
- If they are not mentioned in the correct form you need to get them correct immediately. Similarly, there may be reporting errors regarding the status of the previous loan accounts as well.
- It is thus important to ensure that all the details of the borrower are accurate to avoid rejection.
Existing loan portfolio
- If the borrower has several current loans and the lender thinks that he would not be able to take on another EMI on his existing income, they would reject the application.
- It is thus better to apply once he has paid off a few loans so that his EMI burden as a percentage of his monthly income is reduced.
Do not send so many applications in a short time
- If the borrower applies for loans from multiple sources within a short period of time. It signifies that the borrower is short of credit and he needs to apply to several sources to make up the shortfall.
- This is because the lenders are worried that the borrower would not be able to repay the loan and would be inclined to reject the application.
Minimum income and employment requirements
- Since repayment is entirely dependent on the income of the borrower so the lenders have certain minimum income and employment requirements which play an important role in the loan-approval process.
- The borrower must, however, make sure that he meets all the requirements before he applies for a personal loan.