5 things to follow to prevent your loan application from being rejected

Regulatory pressure for banks to recognize bad loans has also led to a 30% jump in non-performing loans, according to Fitch Ratings. Photo: Ramesh Pathania/Mint

NEW DELHI: Applying for a personal loan is easy these days. You just have to fill in basic details online and within a few clicks, your loan is approved. However, on the other hand, the unsecured nature of loan makes lenders follow a cautious approach while approving personal loan applications.

Here are the five things to follow that will ensure your loan application is not rejected.

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Credit history review

Building and maintaining a strong credit history is the first step towards improving chances of loan approval. Usually, if you have a credit score of 750 and above, the chances of getting a loan is higher. Adopting healthy financial habits such as timely repayment of equated monthly instalments (EMIs) and credit card bills, containing credit utilisation ratio within 30%, maintaining a healthy credit mix and monitoring co-signed loan accounts can help maintain a good credit score.

Gaurav Aggarwal, director & head of unsecured Loans, Paisabazaar.com, said, “Credit score is computed based on the information provided by your existing lenders and credit card issuers, and any clerical error or the fraudulent transaction can pull down your credit score, thereby harming your loan eligibility. Hence, always make sure to review your credit report at periodical intervals to identify and report wrong information on time, if any, to the credit bureaus and lenders for rectification.”

Choose tenure as per your repayment capacity

Lenders prefer lending to applicants whose loan repayment obligations, including EMIs, do not exceed 50% of their monthly income. Loan applicants should also factor in monthly contributions towards crucial financial goals as undermining them can force them to avail costlier loans later on. Applicants can use EMI calculators to find out the optimum loan tenure after factoring in their existing and new EMIs, unavoidable expenses and monthly investments/contributions for crucial financial goals.

Compare loan offers of lenders

Aggarwal said, “Banks and NBFCs offer personal loans interest rates ranging anywhere between 10-24% p.a. This makes it important to compare loan offers of as many lenders as possible before zeroing in on any particular one.” He added, “borrowers must first connect with banks and NBFCs with whom they have existing relationships for personal loan features and offers. Then, follow it up by visiting online financial marketplaces to compare loan options available from other lenders. While comparing lenders, do not limit the loan comparison to interest rates only. Also compare other loan features like loan amount, processing fee, repayment tenure, prepayment charges, etc. before finalizing any lender. Doing so would help you find the best deal as per your loan requirements and eligibility.”

Do not submit loan applications to multiple lenders

Whenever you submit a loan or credit card application, the lender requests your credit report from the bureaus to evaluate your creditworthiness. Such lender-initiated credit report requests are termed as hard enquiries, each of which is included in your credit report and pulls down your credit score by a few points. Hence, making multiple enquiries within a short period can severely impact your credit score.

Instead of directly submitting loan applications with multiple lenders, visit online financial marketplaces to find the optimum personal loan offer available on your credit score, income, job profile and other eligibility criteria. Credit report requests generated through such financial marketplaces are considered soft enquiries and these do not impact the credit score.

Stay away from frequent job changes

Another parameter often factored in by lenders while evaluating personal loan eligibility is the applicant’s employment stability. “Since the practice of changing jobs quickly may be considered as a sign of career instability by the lenders, they may hesitate to lend to applicants who frequently change their jobs. Hence, try to avoid doing so, especially if you are planning to avail a personal loan in the near future,” said Aggarwal.

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