If your application for a personal loan to a bank is rejected it may leave you confused. Also, loans can be denied to customers with good credit history, causing them to wonder "why was I denied a bank loan?
The truth is that when approving personal loan applications, banks are very selective. For a number of factors, they usually have lower approval rates than other forms of borrowers, meaning it's hard to meet the personal loan requirements for a bank.
If, however, an application for a personal loan is rejected, customers have the right to know why. The Equal Credit Opportunity Act states that a lender is legally required to state the exact reason for refusing a loan-seekers request. The Act also states that the lender shall, within 60 days, inform denied applicants of the reason for the denial. That does not happen occasionally, however, unless the applicant pursues it.
The most common grounds banks reject applications for personal loans despite other personal loan eligibility requirements fulfilled include:
Denial of Credit Score
Banks often deny applicants for loans because of the poor or even slightly below-average credit score of an applicant. Banks simply have credit-score thresholds in place in some cases and failure to meet those thresholds can result in immediate denial. If this is the case, the bank must tell the applicant which credit bureau has been contacted. The bank is also obliged to notify the applicant of its credit score. Following the denial, prospective borrowers have the right to get a free copy of their credit report. Consumers should review the report to ensure that their credit history doesn't contain false information. If inaccuracies are found, they should contact the credit bureau, file a dispute, and work to remedy the error.
Income: Insufficient
Applicants for a personal loan must show their income to make the lending bank agree. This is to ensure that applicants are given the financial resources to pay back the borrowed money. Many that don't make enough money, and can't track other income sources, are frequently rejected. Anyone who has lost a job, or even recently started a new job, may also be denied.In general, self-employed applicants are asked to provide evidence documenting a steady flow of business. They would also have to show that safe, long-term contracts are in place to ensure reliable revenue. Shortfalls in any of those scenarios can lead to banks denying applications for loans.
A Debt Abundance
Applicants for personal loans saddled with unsustainable debt frequently find their loan applications rejected by conventional lenders. Maybe the borrower took on the recent debt in the form of a car loan, a mortgage or a student loan. Rapid changes in the debt profile of the borrower will make lending banks uncomfortable with extending additional credit.In certain cases, reapplying within a couple of months after the first loan application can prove successful, as it gives the borrower time to build confidence.
A personal loan can be the answer
Once a denial is issued at the bank for your personal loan application, the borrowers might ask, "Where can I go to get a loan? Rather than dipping into home equity, or borrowing against retirement savings, applying for a personal loan from a non-traditional lender could be more financially prudent. The application process is fast and simple. In as little as one day, applicants can find out whether they're accepted.
Get an instant personal loan with the following lenders:
SBI personal loan
HDFC personal loan
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