Personal loans often offer financial assistance to people for miscellaneous purposes ranging from financing a marriage or higher education in case the applicant may not be eligible for an educational loan. Though personal loans can be used by the borrower as per their choice it does not mean that they are available to anyone who applies for it, like all loans an eligibility criterion is also laid down for these loans and the applicant has to comply with it for availing these loans.
So when an actor came to us with the question "Why was my personal loan rejected despite me being a successful actor?" we dug in deeper into various aspects to find out why his loan was rejected. Apart from that reason we discuss other probable causes also for a personal loan being rejected.
Till maybe a decade or so back, lack of debt may have meant a good thing but not anymore. No credit history means no credit score. A credit rating is a reliable statistical tool that lets the lender judge the creditworthiness of the applicant to ascertain whether to sanction a loan to them or not. Credit appraisal becomes all the more important in the case of an unsecured loan like a personal loan where the lender has no collateral as backup in case the borrower defaults, thus they would prefer to lend to a reliable applicant as revealed by their rating. This is the reason for rejection of the loan application made by the actor; he had no loans in the past and also did not use his credit card. This means he had no credit rating based on which the lender could judge his credit worthiness.
Absence of a credit score or a low score both can cause the personal application to be rejected. A low score is an indicator of a higher chance of the borrower defaulting which can cause the lender to reject the loan application. While a bad CIBIL score personal loan may be offered by a few lenders it is not advisable to take such a loan as personal loans are already expensive and taking them with a low score could make them much more expensive.
As we said all loans have eligibility criteria, to which the applicant has to adhere in case they want the loan to be sanctioned. One such condition on which loan approval rests is the minimum income condition; this means each lender has their own guideline for the minimum level of income at which they will sanction the loan. For example if one were to seek ICICI Personal Loan they would have to have a minimum monthly income of Rs. 17,500 while for residents of metros it would be a minimum income of Rs. 25,000 monthly. Axis bank lays down a minimum income requirement of Rs 15,000 monthly while HDFC has fixed it at Rs. 12,000 for non-metros and Rs. 15,000 for metros each month.
If the applicant changes jobs too often or in the case of self-employed, the records do not show work stability then it is a reason enough for the loan to be rejected. The lender needs to be sure about the amount lent being returned on time, for this they would like to ensure income stability and flow before lending. Some lenders may lay down conditions for the applicant being in the current job for a minimum number of years or for the business to be running for a minimum number of years for the application to be accepted.
Being credit healthy is always advisable but when applying for a loan a host of other factors also play an important role in the loan application being rejected or accepted.