Why Your Personal Loan Got Rejected Even with a High Salary?

Personal loan, one of the credit products offered by lenders like banks and NBFCs, are highly important in India. However, not everyone can easily get these. One can always apply for a personal loan or some other credit product like a credit card, but getting approval for the same depends. There are a number of factors that play while the authorities decide whether or not to assign you the loan/credit.

High Salary, Personal Loan Rejection

High salary is one of the various factors that help you get a loan approved. Hence, it is expected to get the loan application accepted when one is earning good.

However, the rejection may still come due to various other factors at play. Personal loan application approval does not depend on one factor, the salary, but is dependent on a series of factors. Despite a good, stable salary, you may be rejected a loan because of these other factors as reasons.

Factors That Cause Loan Rejection Despite High Salary

Here are the factors you need to know:

Your Credit Score

Your credit score, also referred to as the CIBIL score (score provided by CIBIL credit bureau), counts as one of the major factors that decide the acceptance or rejection of your loan application. Your credit score is a reflection of your credit health. Lenders want to issue loans to people with a good health as they are the ones who are capable to repaying the credit amount back with interest.

The score needs to be above 750 to be referred to as a good credit score. However, when the score is not high/good enough, you may be disapproved of a personal loan. Even if you get the loan, the interest rate could be a non-preferable one that is quite high.

You may also like "How Pre-Approved Loans Differ from Regular Personal Loans?"

Past Payments

Your missed or late payments, made in the past against any credit product borrowed, could also lead to a personal loan rejection this time. Even if you have attained a good salary, missing a single EMI payment can put a red flag. This is then visible in your credit history/report for years.

When lenders feel that you have not been consistent enough with repayments of loans in the past, they doubt if you will be better again in the future. Usually, they may choose to finally reject your personal loan application.

Your Debt Load

To calculate how much debt you are in, the lenders will calculate your debt-to-income ratio.

Debt-to-income Ratio = (Your Total Monthly Debt / Your Net Monthly Debt) * 100

Lenders prefer a DTI ratio that is between 50-55% and not more than that.

A higher debt to income ratio means that you are much in debt and may not have enough funds at some point o time to repay the loan amount.

Hence, even with a decent salary, with the debts too high, you are not considered enough creditworthy to be able to pay further. Because the lenders cannot risk giving money when there are low chances of getting it back, they end up rejecting the applications.

Don't miss this! "What Are Your Legal Rights After Defaulting on A Personal Loan?"

Consistency in Your Career

You might be earning good, whether you are salaried or self-employed. However, stability and consistency in your job/business need to be there to prove your ability to pay back a borrowed sum. You can be in a good job currently, but lenders need to know how loan you have been earning this much. If inconsistencies are found, it may hint at your inability to assured repayment.

Lenders prefer at least 1 year completed as salaried, or at least 3 years for self-employed. Even your employer can give some hint. Lenders also prefer those working with MNCs and established companies as well as government employees.

Document Error

Lastly, a basic error or inaccuracy in your document may also lead to the lender refusing a loan application. This is possible when the credit score has been wrongly mentioned, say, instead of the actual 750 score, it's been mentioned as 550. In such a case, you might be eligible for a personal loan but face loan rejection due to an error in the credit report.

This issue can only be resolved by keeping a timely check of the report so as to avoid the presence of an errors or false information.

Recent article "How to Make Your Money Work for You After Retirement?"

More Latest Articles

Upcoming Bank Holidays

Find More Useful Links