A medical emergency, wedding, travel, renovations, buying an asset are few of the instances when one may require additional funds than they already have. A personal loan can act as a boon at those times. However, things are not as easy as they look like. There so many criteria that banks or the NBFCs or the financial institutions check before approving the loan application.
When loans come to question and the loan eligibility, credit score is the first factor that is seen. As we all know, a credit score is a three-digit number that ranges from 300-900, 300 being lowest and 900 being highest. 750 plus score is good. 600 – 750 is average and any score below 600 is low. If the score is below that 600 points, one must take necessary measure to Improve CIBIL score. We must understand the importance of it while applying for a loan as if the score is good the other battles for the loan eligibility would be easy to achieve. But to improve, it takes time, it doesn't happen overnight. If the score is average or low, there are definite chances of loan getting rejected. Especially the one like a personal loan which is an unsecured type of loan. What is unsecured type loan? A loan where there is no security kept in either of property, gold, shares, bonds or any other class against the loan amount becomes the unsecured type of loan.
Also, the average or bad score brings a higher interest rate when applied for a loan. As the score is low, there must be some defaults or late payments or more of credit line usage or not a healthy mix of credits. This shows the behavior towards the credits and the lenders think it is a risk profile. More the risk more is the interest rates charged. If an applicant has the score of 632 and is applying for a personal loan, the personal loan interest rate may be as high as 27% or maybe 32%. As seeing the score the lender feels it as the risk-taking decision.
While talking about a personal loan, there are so many things that are measured, along with the score. The repayment capacity. It is defined as the capacity to repay the EMI of the repayment which is the total earning minus the total expenditure assumed in usual cases looking at all the scenarios if the borrower is a major earning source of the family or not. This is also the concept called as debt burden ratio which is calculated as the total debt (not only the credits but the regular expenditure) divided by the total assets (Savings, gold, property, shares, bonds etc). Also, with common logic, if with any of the above-mentioned reasons the loan gets rejected, it will be difficult to get it approved from the same lender again.
There is a myth that if the personal loan gets rejected for three times, it will impossible to get a personal loan again. We can’t be denying the fact that if the loan gets rejected 3 times by different lenders in a particular span of time, it becomes difficult to then get it. However, it is not impossible. There are various reasons for the loan to be rejected. And one has to check it in depth about the major reason of loan rejection. A credit report will also have the details of how many times a personal loan is applied for as it becomes a hard inquiry. If suppose the loan is rejected for a low cibil score, one may dedicatedly work towards it improve CIBIL score is a years time and if that is now 700 or more and then again applying for a loan the lender feels that the borrower is now responsible against the credits, the loan can get approved!
We should always remember that if not every soon but after working on the core issues of the loan rejection, it can be approved.