Notwithstanding the opinion of a few credit experts who are not very fond of personal loan, it goes without saying that this product is a good option if the quantum of money required is low. In case of a lower amount of loan, the same shall get paid faster as well which is a plus by all means. Since the end use is not restricted and the borrower has the liberty to use it for any purpose, it makes the product a popular choice for bridging the gaps when needed. However, being an unsecured loan product, the cost of funds is higher than other credit offerings.
None the less, in case of an exigency or to meet the gap in requirement of funds while buying a house, or for events like marriages it makes a great product and has become one of the most popular loan types in Indian population.
In case you do not wish to be handed over the rejection letter, you would need to look into the following before initiating the application.
The loan amount applied plays an important role. While on one hand it has to be within the repayment capacity of the borrower, on the other hand, it should not be too low. If the requirement is too low, the bank may construe it to be as an indication to stressful financial situation. In general, the banks may not approve the loan below Rs. 25,000. In case the funds required are low, then it would be better for you to meet the requirement from your own savings or if at required, take a hand loan from family or a friend.
Having adequate salary is of high importance as far as personal loans go. Since there is no collateral, the lending institution will lay a lot of importance on the income of the borrower. A high salary does not guarantee an approval of loan. It is the debt burden ratio that will have an impact. As a thumb rule, the banks permit up to 50% of the net income as the threshold for the borrower to serve all his loan obligations. So you must calculate all your obligations before applying for the loan. In case it is already about 50% of income then it may not be prudent to apply for the loan.
Credit score again carries a lot of weightage in the underwriting process. Generally, a score of 750 is deemed to be a good enough score for one to have a personal loan application approval. It will only be a good idea to obtain your bureau report and check the score before you initiate loan application. The score can not just be low for your repayment issues. Even if you have had no default in past, the score could be low. So check the report before applying and in case there is an issue try to resolve it. In case you are unable to address the score concerns, you have to look out for a personal loan for low CIBIL score.
The loan applied by self employed individuals generally do not get through. So if you are into your own business, speaking to the bank even before you apply for loan may just be the correct idea. Approaching the bank where you already have a relationship may be another step that may help you not getting rejected.
In case of salaried individual, the employer profile also makes the difference. In case one is working with a proprietorship or partnership company, the chances of a rejection are higher. As a counter to this, you should approach only the bank where you have a salary account.
Any error on the application can also be a cause of rejection. So make sure that the details provided by you on the form are correct and would go through the rigorous authentication process without any issue.
Do not shop around for the loan. Do your homework and apply for loan only when you have considerable surety on getting through with it. Never apply for various banks at the same time since it again raises a suspicion with the underwriter and may lead to rejection.