Loans actually make life much easier when it comes to the ease of cash flow. There are so many loans which are predefined. Like, A home loan is for buying a house or an auto loan is for car or bike or vehicle, a business loan is for business and an education loan for higher education. These are loans for a predefined purpose.
When we talk about gold loans or personal loans, they can be used for any use. May it be a house renovation, wedding, medical emergency, travel, they can be used. But, not apply for personal loans gets approved. It is important to know that why are the applications are rejected so as to make sure that when we apply for a loan, there are lesser chances of the loan getting rejected!
Understanding the logic of credit score is much important when we talk about loans, it’s approval and anything related to it. A credit score is a 3 digit number between 300-900 where 900 is highest. Also, the five parameters that define the score are payment history, an amount owed, length of credit, credit mix, and new credit. Now, when the score is below 600 it is considered as a low credit score. As the lower score indicated poor management of credit, higher are the chances of loan getting rejected. Also, even if the loan is approved, the borrower will have to check the personal loan interest rate as it would be more compared to other options.
If the applicant has may previous loans those are yet to close. Some must be open, as in the payments are still left and the tenure is also going on. for some of the loans, the tenure would be over but the borrower has not made any payments because of some genuine reason that he/she can’t pay or a mere default. In such cases, when the payments are pending even when by the prescribed time of the loan is completed. In such cases also the loan gets rejected. For this, what one must do is start repaying the older dues as soon as they can. This is also one of the major reason for a low credit score.
credit card or a loan. Now, this is a catch 22 situation, as the credit score is established only when you take credit but you can’t get credit without a score. This could be solved by personal loan for no cibil score. One may get this off by taking a small amount of personal loan which can be good to start building the score.
This is also one of the major factors for loan application getting approved or rejected. How long have been the applicant working in that organisation? How frequent are the job changes? This all gives an idea about how serious is the applicant about his/responsibility. Also, the amount of which the loan is required, the borrower should have atleast the earnings that could manage his/her daily life and family expenses along with the amount of EMI that is to be repaid. There is also a term called DBR, debt to burden ratio. This gives the debt i.e. credit that has to be repaid to the income. This states that usually, the DBR should be 30:70. So even if the applicant may lose his/her job, for a month or two, they can still survive for a few months as the savings would be there. So employment status also plays an important role.
There are many instances when the applicant has applied for the loan and it has been rejected. Any loan application made is called a hard inquiry. When the hard inquiries increase, the score by few points drops. Also, more the hard inquiries more it shows that the applicant is in instant need of cash and hence has made so many inquiries. The lenders, banks or NBFCs would check this information on the applicant‘s credit report and get an idea about this.