If you are searching for a personal loan and assume that only your credit score determines whether you will get the loan or not, then you are probably wrong. The credit department of your bank considers several factors besides credit score. For instance, someone with a low monthly income and a high credit score does not have a good chance of getting a personal loan approved.
Similarly, when you have an existing loan of a high amount, the lender may be reluctant to offer another personal loan unless your income justifies additional borrowing.
As they say, the devil is in the details; let us untangle them here.
Loan could get rejected for these reasons
Age: Sometimes, age can be a factor for loan rejection. Typically, young salaried people have a higher probability of getting a loan vis-a-vis someone older in age. Therefore, one reason for loan rejection could be an employee who is set to retire in a couple of years, i.e., prior to the end of the loan tenor.
Lack of fixed income: Another reason for rejection of a loan could be the lack of a fixed income. Although self-employed persons are eligible for personal loan applications, sometimes lenders get sceptical about disbursing loans to non-salaried professionals when their income is sporadic, and also when there are too many loan applicants chasing a little capital available with the bank.
Current loan: Another factor which has a bearing on the fate of your loan application is your existing loan. Sometimes a loan applicant has a current loan which covers more than half of their monthly income. In that scenario, a lender would be sceptical about disbursing additional loans to the borrower.
Amount is high: Your loan could also get rejected when you apply for too high an amount than what your salary can afford to repay. So, even if your credit score is high, the lender may reject your loan application when you apply for a higher loan amount than your affordability.
Job contract: Finally, your loan could also get rejected when, despite being a salaried employee, your service contract is set to expire in a few months or one year, i.e., before the length of the loan tenor.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
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