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Things To Do If Your Personal Loan Gets Declined

Things To Do If Your Personal Loan Gets Declined

Wondering why your lender declined your personal loan application?

While personal finance offerings are popular due to their easy disbursement, collateral-free funding, quick approval, etc., lenders don’t approve every application. And even though a loan rejection isn’t the end of the world, it can impact your credit report negatively.

So what should you do if your loan application gets rejected? Let’s have a look.

What to Do Immediately After Your Personal Loan is Declined

#1 Examine your credit report

Whenever you apply for a loan, the lending institutions meticulously review your credit report. That’s why before making a loan request, you must examine your report to find anomalies if any.

Now that your loan is declined check your report carefully to see if there are any inaccuracies. It’s a common misconception that conducting regular checks can lower your CIBIL score, but soft inquiries like these don’t impact your score.

Instead, finding any delays in updating your credit report or rectifying errors can improve your credit score.

Also, read – Can I Apply for Personal Loan after I’ve Been Rejected Multiple Times?

#2 Incomplete paperwork

Lenders request a set of documents, including proof of your identity, income, employment, address, etc. You must submit the necessary paperwork transparently. This helps avoid any delays in document verification on the lender’s end.

Remember, a lender will always perform a complete background check on you before approving your loan, and if there is any discrepancy, consider your personal loan declined.

#3 Identify reasons for loan disapproval

If your loan application is rejected, even if you filled out the application correctly and provided the relevant documents, then your loan profile didn’t meet the lender’s minimum requirements. The first thing you must do now is identifying the root of the problem. 

Review the following factors crucial to your personal loan eligibility:

  •     Bad credit score
  •     Too many loan applications simultaneously
  •     Unstable or insufficient income
  •     Frequent job changes
  •     Limited credit history

#4 Boost your credit score

Your CIBIL score reflects your creditworthiness. Besides landing you competitive personal loan interest rates, a good score over 750 can also help you qualify for a bigger loan amount.

If your credit score is the reason your loan was declined, you can perk it up in a matter of months. Here’s how.

  •     Pay your credit card bills and EMIs on time.
  •    Keep the spending on your credit card limited up to 50% of the approved limit. This way, your credit report displays good spending discipline. However, don’t stop using your credit card altogether, as that can also lower your CIBIL score.

Also, read – What Happens if a Personal Loan EMI is Missed?

Why Your Personal Loan Was Declined: Key Reasons Explained

To understand why your personal loan was declined, you need to assess some key reasons. 

Application errors, like incorrect or incomplete paperwork, or failing to check the eligibility criteria beforehand, can cause the bank to decline your loan request. A lower credit score can lead to potential rejection. Lower or inconsistent income can raise doubts about your repayment capability. A high debt-to-income or DTI ratio, and a high credit utilisation ratio, both signal financial irresponsibility. Finally, existing debt and multiple loan applications can cause your loan to be declined as well.

My Personal Loan Declined After Pre-Approval: What Happened?

A pre-approved personal loan is provided by most banks. Pre-approval is provided based on the borrower’s credit history and repayment track record. However, it does not guarantee that the loan will be disbursed.

Personal loans can be declined even after pre-approval. You might be rejected in case of a sudden change in job status, a change in income, a dip in your credit score, exceeding the age requirement for the loan after the pre-approval process, or a change in loan repayment ability.

Also, read – 10 Reasons Why Your Credit Card Was Rejected Even with A Good Credit Score

Personal Loan Rejection Reasons: Common Causes for Decline

There are several common reasons why your personal loan could have been declined.

  1. A credit score below 750 can lead to rejection.
  2. Applying for several loans at once can indicate a poor financial status.
  3. A large debt-to-income ratio can raise questions about your repayment ability.
  4. Failing to meet the lender’s minimum income requirements can also result in denial.
  5. Frequent job changes or gaps may indicate that you have inconsistent income.
  6. Missing or inaccurate documents can delay or reject your application.
  7. Not meeting age requirements is another reason. Most lenders require applicants to be 21–60 years old and citizens or permanent residents.
  8. A limited credit history can also contribute to rejection.

How to Improve Your Chances for Future Personal Loan Approval

To improve the chances of future personal loan approval, follow these steps:

  • Pick a loan product that fits your budget and repayment capacity.
  • Ensure that you meet the eligibility criteria for the personal loan.
  • Submit all required loan application documents. Verify their accuracy before submitting the application.
  • If there are errors in your credit report, report them before applying for the personal loan.
  • Maintain a low debt-to-income ratio.
  • Get a co-applicant with a good credit score. It adds credibility to your loan application.
  • Maintain a healthy credit score – pay EMIs and bills on time, improve your credit mix, and keep your credit utilisation ratio low.

Alternative Funding Options After Personal Loan Rejection

Despite your personal loan declined, there are alternatives that can help you get the required funds. Consider the following:

  • Gold Loan: You can borrow money against gold as collateral. The amount borrowed varies depending on the lender and the market value of gold.
  • Loan Against Insurance: Loans can also be obtained against life insurance policies.
  • Loan Against Fixed Deposits: If you have money in a bank as a fixed deposit, a loan can be obtained against it.
  • Loan Against Property: Money can be borrowed against property as collateral.

Conclusion

Now that you know what to do to ensure your loan application doesn’t get declined, it’s time to find a trustworthy lender. If you are looking for competitive loan terms, choose Tata Capital or explore our personal loan app!

We extend multi-purpose personal financing tailored to suit your needs. Furnish minimal personal loan documentation and avail of attractive interest rates, starting at just 10.99%. Moreover, you can use our personal loan EMI calculator to get hold of your repayment costs in advance.

So, wait no more! Apply today.

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FAQs

What should I do if my personal loan gets declined?

 

If your personal loan gets declined, begin by understanding the reasons for the rejection, such as a low credit score or incomplete paperwork. Examine your credit report to verify information accuracy. Then, to improve chances of future approval, improve your credit score and lower your DTI ratio.

What are the most common personal loan rejection reasons?

 

Personal loan rejection reasons include low credit scores, existing debts, insufficient or unstable income, unstable job history, incomplete or incorrect documents, age or nationality restrictions, multiple simultaneous applications, or a limited credit history. All of these can contribute to the rejection.

Can a personal loan be declined after pre-approval?

 

A loan pre-approval is not a guarantee. You can still have your personal loan declined after pre approval, after your lender reviews final documents, updated income, and credit reports. Changes in financial status or incorrect paperwork are some personal loan rejection reasons.

Does a personal loan rejection affect my CIBIL score?

 

A personal loan declined itself does not directly reduce your CIBIL score. However, multiple loan applications within a short period result in multiple hard inquiries. This can lower your score. If you want to protect your credit score, apply for loans strategically instead.

How long should I wait before reapplying for a personal loan after being declined?

 

After a personal loan declined, it’s best to wait at least three to six months before reapplying. During this time, you can analyse and address the reasons for rejection. Take steps to improve your credit score, reduce existing debts, and ensure that all your documentation is accurate. 

What are the steps to improve my chances of getting a personal loan approved in the future?

 

To improve approval chances for personal loans, start to maintain a good credit score, reduce existing debts, ensure a stable income and employment, provide accurate documentation, avoid multiple simultaneous applications, and work on building your credit history. These steps can help you secure loans in the future.

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