A high credit score certainly increases the chances of your loan being approved. However, it does not guarantee it. Credit score is just one of many parameters used for credit approval by lenders. If you fail to qualify on other metrics, even your high credit score won’t help. Here are some of the most common reasons loan applications get turned down despite having a good credit score:
1. Eligibility for minimum income: Most loan products have minimum income criteria for loan applicants. Lenders can also set different income eligibility criteria depending on your location i.e. metropolitan, urban, semi-urban and rural areas. As this is often the first filter lenders apply when processing loan applications, those who do not meet this criterion are usually rejected out of hand, even without considering other eligibility factors, such as EMI credit rating and accessibility. As this criterion can vary from lender to lender, visit online loan markets to find out what lending options are available to you based on your monthly income.
2. Age: Most lenders cap the age of loan applicants at 60. This is because monthly income generally drops after retirement, which increases the risk of default. Some credit products may also have a cap on the age at which the repayment must be made. For example, most lenders require borrowers to complete their home mortgage and cash on property loan by age 70. Those who do not meet these requirements may have their loan application rejected. If you too are approaching retirement age, improve your chances of obtaining a loan by making your spouse or working children your co-applicants.
3. Frequent job changes: These days, it is quite common to change jobs frequently for better career prospects and higher incomes. However, frequent job changes are seen as a sign of an unstable career and hence job seekers are seen as less creditworthy, especially for long term loans like home loans and home loans. . If you also plan to take a longer-term loan, avoid job changes for a while.
4. Guarantor of another loan: Whenever you become a guarantor of someone else’s loan, you also become responsible for their repayment. Therefore, when applying for a new loan again, the lenders will reduce your loan eligibility by the outstanding loan amount guaranteed. This could result in the rejection of your loan application. Since banks do not allow changes of guarantor (s) unless the borrower himself requests it, ask the principal loan applicant to find another guarantor to replace you.
5. High FAITH: The Fixed Bond-to-Income Ratio (FOIR) is the proportion of your total income that comes out in the form of EMI (including EMI for the new loan application) and other repayment obligations like rent from the home. house, insurance premiums, etc. Since lenders prefer to lend to those with a FOIR of 40-50% or less, those who exceed it may have their loan application rejected. Therefore, those with a higher FOIR would have to prepay their existing loans in whole or in part to increase their loan eligibility. Alternatively, go for a lower IME for the new loan if it contains your FOIR between 40 and 50%.
6. Profile of the job and the employer: Many lenders also take your job description and / or employer profile into account when processing your loan application. Lenders prefer government employees and those who work with larger companies and multinationals because of their greater certainty of employment, while those who work with lesser-known or financially struggling companies are less preferred. Employees with a dangerous job profile have lower chances of loan approval. Consider NBFC loans if the banks reject your loan application because of your job or employer profile.
(By Naveen Kukreja, CEO and Co-Founder, Paisabazaar.com)