You might have been contacted through call, email, SMS, etc. by a lender regarding a loan offer, often for personal loans, with a promise of quick disbursal. After submitting a host of documents, when you so eagerly wait for the loan, you get the shocking news of ‘Loan Rejected’. 

Many of you must have experienced similar scenario in life while applying for a loan. The reasons may vary from person to person depending on the credit profiles and employment details. In some cases, you may be clueless about the reason for the rejection. 

We understand your pain when you need credit the most for an emergency situation and end up getting rejected. As your credit coach, we would like you to make credit easily accessible to you.  

Next time, when you apply for a loan, you can follow some of the tips that we have put together in this article to increase your loan approval rate. 

1. Know Where You Stand 

Knowing your credit status is the first step towards your loan application. Your credit score is a reflection of how responsible you have been with your earlier credit. This is the first thing that the lenders check in your loan application.  

Credit score ranges from 300 to 900 with higher scores indicating better creditworthiness. Any score above 750 is considered to be good. For lenders, a good score acts as an indicator that future credit will also be dealt responsibly.  

Therefore, it is always good to be touch with your credit score. Regular checking of credit score will help you know where you stand and how you can improve if need be. While you can get a good offer with a good score, you must take a careful step with a bad credit as too many rejections will have a negative image on your credit report. 

If you are new to the credit system, you will have no credit score and history. For such individuals, the assessment criteria are mostly based on their income and employment. 

We would advise you to check your credit score regularly and at least 3 -6 months before applying for any kind of credit.  

Additional Reading: Tracking your credit behavior is now simple 

2. Compare To Get The Best Offer 

After checking your credit score, the next step for you is to compare among lenders and get the best rate for your requirement.  

For the best rates, you can search online to get more details about the loan you are looking for. Compare the interest rates, tenure, terms, and conditions of various lenders and select the one who offers the best rate of interest for you. While you are comparing, make sure you are not making a hard enquiry, as it will further reduce your credit score. 

Here is another point that you should be aware of. A good credit score not only gets you good offers on loans and also gives you an opportunity to negotiate with your lenders. However, if you have a bad credit score, you may not be eligible for a loan from banks.  

Such candidates can approach NBFCs or some online private lenders for a loan with best offers. But, you should be ready to pay a higher rate of interest when you approach these lenders.  

3. Get Your Documents In Order 

This is an important part where a minor error or mismatch on your document can lead to loan rejection. Go through the list of required documents demanded by the lender, gather all of them and go for the submission. 

With a good credit score and steady income, you may be eligible for a loan, but failing to submit the right documents may hinder the approval rate.  

Different types of loans call for different criteria for documents. It is good to get a list of documents needed from your lender and prepare them accordingly. For example, a personal loan requires your Income Proof, Identity Proof, PAN, Address Proof and a Photograph.  

However, when you apply for a loan against property, the documents required will be much more including the title deed, approved building plan, encumbrance certificate, etc. Without submitting the right documents, your chances of loan approval go down. Hence for a quick processing, your documents should be thorough and proper. 

4. Calculate Your Loan To Income Ratio 

Some of the main requirements that are needed for loan approval are good credit score and income that matches the loan amount that you are applying for.  

However, lenders do not look at your gross income. They look at your net income after payment of all obligatory taxes and other loan obligations. This is done to ensure that you have enough income left over after meeting your existing loan obligations to take on a new loan.  

Lenders generally allow for 30-40% of your net income as your EMI outgo. For lower range of incomes, lenders insist on your EMIs not crossing 30% of your net income, while for high incomes a concession may be made up to 40% of the income.  

So, make sure that your total EMIs including the loan being applied for do not cross this limit. If you are already paying high EMIs, then it may be better to take time to close those loans before you apply for new ones.  

5. Avoid Applying For Multiple Loans 

Credit should be applied for only when you really need it and not as a regular feature or every time you are offered a loan/ credit card. 

Your every loan application will show up as the hard inquiry on your credit report. Multiple loan applications in a short span of time will portray an image that you are credit hungry. This can create a negative impression about you to the lender resulting in a loan application being rejected.  

Hence make sure that you do a thorough research and apply for a loan one at a time.  

Bottom Line 

Your need for loan may be immediate, so make sure you meet all the criteria set for the loan. 

After having understood the requirements and process, take the next step towards your loan application to avail the loan of your choice successfully.