What are the possible reasons for refusing a personal loan?

When you apply for a loan, the lender checks two things-the borrower’s willingness and ability to repay.

Credit scores and history are good indicators of a borrower’s willingness to repay a loan. Their income reflects their ability to repay.

Credit score check

Lenders usually have a threshold credit score that does not lend below that. “Banks usually need a credit score of at least 650 or higher to approve a personal loan,” said Adhil Shetty, CEO of Bankbazaar, but given the recent credit crunch caused by the pandemic, this is 20-30 points. It could rise. ” .com.

If the score is below this threshold, the bank may reject the application. NBFC’s credit score requirements are usually lower than those of banks.

If you do not have a credit history, the lender has no way to evaluate your financial habits. In this situation, if you approach a lender with no history-no savings or payroll accounts or deposits-they may refuse your loan.

According to Shetty, if you have no credit history and need a personal loan. We recommend choosing a secure personal loan, such as a loan for a time deposit.

Income check

Lenders have a marginal income that they will not lend below that.Normally this limit is set to about 20,000 to 30,000 a month. However, if the value of the loan is high, the income requirement may be high, and if the income does not meet the minimum income standard, the lender can refuse the application.

Shetty points out another reason for the refusal. If the fixed debt to income ratio (FOIR) is high, the lender can refuse your loan despite the high income. FOIR considers all fixed debt that the borrower is supposed to meet on a regular monthly basis, such as rent, existing debt such as credit card invoices and EMI for other loans. The lower the FOIR, the better. That means you have enough income to repay your loan. Generally, if the FOIR is above 40%, the lender will not lend.

Other checks

Apart from this, lenders also look for factors such as stable employment and income records, age and nationality. Even educational qualifications can affect loan approval.

Inaccuracies in the application, especially name, age, address, etc., make it difficult for the bank to generate the necessary information about you, leading to the application being rejected.

(Do you have any personal financial questions? Send to for answers from industry experts)

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What are the possible reasons for refusing a personal loan?

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