Personal Loans: Application rejected? 4 essential things that you should do next to ensure approval
If your application for a personal loan is rejected, implement essential measures to comprehend the circumstances and enhance your prospects for future approval.
The course of action you pursue following a rejection for a personal loan will vary depending on the grounds for the denial, but here is a broad strategy to consider:
Try to comprehend the basis for the denial, if feasible
Review the denial letter for elucidation. According to Indian law, lenders are obligated to furnish an "adverse action" notice detailing the reasons for rejection and the credit bureau utilised in the decision-making process. If the rationale remains unclear, reach out to the lender for further clarification. They may offer insights into the reasons behind the non-approval of your application.
Work on your application for future submissions
You have the right to obtain a complimentary credit report annually from each credit bureau in India. Examine it meticulously for any inaccuracies and challenge any errors detected. Rectifying these discrepancies can positively impact your credit score, potentially facilitating future applications. If your debt-to-income ratio poses a challenge, prioritise augmenting your income or reducing existing debt to enhance your eligibility. In instances of a low credit score, enlisting a co-signer with excellent credit can bolster your approval prospects and potentially secure a more favourable interest rate.
Check for alternative loan possibilities
Depending on your requirements, a line of credit could serve as a viable alternative. It provides greater flexibility compared to a personal loan, though interest rates may fluctuate. If you're affiliated with a credit union, they might extend loans against your savings account balance, frequently featuring lower interest rates.
Reevaluate your requirements
If the requested loan amount was deemed too substantial, contemplate reducing it to enhance your likelihood of approval. Additionally, investigate alternative funding avenues. For instance, assess the feasibility of partially covering your needs with savings, scholarships, or grants to diminish your loan necessity.
Borrowers should recognise that a rejection of a personal loan does not need to hinder their progress towards their goals. By comprehending the reasons behind the denial and considering alternative options, they can determine the most effective path forward.
Frequently Asked Questions (FAQs)
Q. Is it possible to transfer a personal loan to another lender?
It's feasible to transfer any type of loan to a different bank. If you discover more favourable terms and conditions elsewhere, you can opt to refinance your loan with another bank. Typically, loan refinancing is pursued to secure a lower interest rate or to convert secured loans into unsecured ones.
Q. What is the prevailing interest rate for personal loans?
Interest rates for personal loans in India can fluctuate considerably, influenced by various factors such as:
- Credit score: Individuals with a higher credit score, usually above 750, often qualify for lower interest rates.
- Loan amount: Smaller loan amounts may be associated with higher interest rates.
- Loan tenure: Longer loan durations might result in slightly elevated interest rates.
- Relationship with the bank: Existing customers may receive marginally improved rates from their banks.
- Lender's risk assessment: Banks assess factors like income, employment stability, and debt-to-income ratio to determine the applicable interest rate.
Typically, personal loan interest rates in India can span from 9.99% to 30% annually, albeit this range is quite broad.
Q. How can one secure a reduced interest rate for a personal loan?
Selecting between a flat rate and a reduced rate for your loan is a critical decision that can substantially influence the total amount you repay on your loan. Here are some suggestions for securing a lower interest rate on a personal loan:
- Enhance your credit score: Timely repayment of existing loans and credit cards significantly improves your credit score, which is pivotal in securing favourable interest rates.
- Compare loan offerings from various lenders: Avoid settling for the initial offer you receive. Instead, explore and juxtapose interest rates, fees, and other terms from multiple lenders.
- Negotiate the interest rate: Attempt to negotiate the interest rate with the lender, particularly if you possess a commendable credit score or a solid relationship with the bank.
- Borrow a smaller sum: If feasible, opt for borrowing only the essential amount. A smaller loan amount translates to reduced overall interest costs.
By adhering to these strategies, you can enhance your prospects of securing a personal loan with a competitive interest rate.
Q. How does adding a co-signer to your loan application improve your credit score?
Including a co-signer with a favourable credit score on your application can enhance your approval prospects and potentially qualify you for a reduced interest rate. Nonetheless, exercise caution in selecting a co-signer as they share equal responsibility for loan repayment.
Q. How to get a low-interest personal loan?
Securing a low-interest personal loan demands careful planning and proactive measures. Below are essential strategies to enhance your likelihood of obtaining a favourable interest rate:
- Utilise a co-applicant or guarantor
- Explore NBFC lenders
- Evaluate secured personal loan options
Catch all the Instant Personal Loan, Business Loan, Business News, Money news, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.