Worried that your personal loan application will be rejected? Discover the most common mistakes and learn how to avoid them with our handy list of tips.
Applying for a personal loan can be a stressful experience, especially when you’re worried about being rejected. To help clear any confusion and increase your chances of success, here is a guide to the most common mistakes borrowers make when applying for a personal loan in India, and how to avoid them.
Have a Low Credit Score.
One of the most important factors that lenders take into consideration when assessing a personal loan application is your credit score, as this shows how reliable you have been in the past with repaying debts.
Make sure to check your credit score beforehand, and if it’s too low, take steps to improve it first before submitting your loan request.
This could involve opening accounts and making payments on time for six months or more, paying off outstanding balances on existing accounts, disputing errors or inaccuracies on reports, and avoiding applying for too many loans in a short timeframe.
There are free tools that allow you to check your credit score. These free tools are not exactly precise but its more or less similar to the paid one you get it.
CIBIL is one such company which give precise report. Other than that CRIF also provides the facility and banks rely on these companies to refer the credit score of the applicant.
Submitting Too Many Applications.
Applying for too many loans at once can have a negative effect on your credit score. It is best to leave at least six months between applications, so it looks like you are not desperate for money and are in control of your finances.
For this reason, it is advised to research different lenders and find the one that is most likely to accept your application instead of applying for multiple loans simultaneously.
Moreover, having researched beforehand would always give you better options to act upon.
Irregular Weekly or Monthly Income.
Lenders, when assessing loan applications, will usually look at borrower’s income and outgoings. An irregular monthly or weekly income could be an indicator that the customer may struggle when it comes to paying back their loan in full and on time.
If this is the case, lenders may be more reluctant to approve loans for such individuals as it could mean they are taking on a higher risk than normal.
To increase the likelihood of your loan application being accepted, you should set aside part of your income each month towards repayment and make sure that you can provide consistent proof of earnings.
If your employer is irregular paying salaries, then it become difficult for you to tackle the issue. The only way to come out of it would cumulative effort from all of your colleagues.
When a person gets salary on time and if he has a good credit score, there is high chance that your proposal get accepted.
Poorly Drafted Loan Agreement Terms and Conditions.
It’s important to remember that your loan agreement should be clear and detailed when it comes to what is expected from both parties.
Failing to include all of the relevant information in the contract can lead to misunderstandings and problems in the future, with lenders likely to view this as an indication of potential risk and reject your application.
Make sure you have read through the terms and conditions thoroughly, including any small print, before submitting your application and make sure both parties understand their respective obligations.
Applying for a Loan Without Having All of the Required Documents Ready.
Applying for a loan without having all the required documents ready could be an indication to lenders that you are not taking the application process seriously.
Make sure to double-check every document that may be necessary and make sure your financials are accurate, as this can be a telltale sign of poor budgeting management skills.
If you’re unsure of what is needed, contact the lender directly so they can provide help in this process. The checklist which banks provide beforehand is quite handy. Basically few things that you must keep ready with you are as under-
- Your KYC documents- Its a identification documents that can be an ID card and PAN card. ID can be as per Reserve Bank’s KYC guidelines. It may be Aadhaar card, Voter card, Driver’s license and Passport plus your department ID.
- Keep at least latest 6 months salary slips with you.
- If you have filed Income Tax returns, keep ready a printout of ITRs.
- Stamping while executing loan agreement is surely going to happen. So, keep stamp paper with you.
The above list is speculation for a personal loans, like wise, for home loan requires other legal papers related to property. Auto loan requires different papers. So, it make sense to get checklist from the bank before applying for it.