So you have the best CIBIL score for loan and you go ahead to apply for the same. But alas! It gets rejected. Shocked? Well, don’t be. There are plenty of reasons that could have led to this outcome. Instead of getting distressed, analyze what went wrong with your free cibil report. And then find the means to rectify it.
Reasons for loan rejection apart from CIBIL
The reasons can be manifold. But the outcome is just as troublesome in any case- rejection of the loan. So let us have a look at what mistakes could you have possibly made in spite of having the a good CIBIL score for loan.
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1) Any settled or written off loans of the past
When you apply for a loan, the potential lenders have a thorough look at your credit report. If you have any loan account that has not been paid as per the original terms of the loan, it might indicate trouble to your potential lenders. This might be a warning that says you have not been entirely financially responsible in the past. Yes, this could be the implication drawn even if your recent history shows fully paid loans. Any such incident is a red flag for potential financiers because they see you at risk of repeating such irresponsible behavior.
2) If you have been a Guarantor on a defaulted loan
What does it imply to be a Guarantor on a loan? A guarantor is a person who agrees to repay the borrower’s debt in case the borrower defaults on agreed repayments. If you have ever been a guarantor on a loan that was eventually not repaid, then your CIBIL score for loan is affected in a negative manner.
3) If you have been marked as a defaulter by error
Although unfortunate, it can so happen that if you have moved into a house that was earlier occupied by a loan defaulter, you might be listed a defaulter as well. This could happen simply because of the address match. Lenders might discard your application outright on seeing that you are a past defaulter. It will also affect your credit score for loan.
4) High Debt to Income ratio
If you have any current loan obligations, it might not reflect well on your loan application. A high number of current loan obligations coupled with spending a high portion of your monthly income on servicing your existing debt can put you under the risk of rejection. This could be the case in spite of having the best CIBIL score for loan or even if you have a good record of making repayments. If your monthly debt commitments surpass a certain percentage of your income, lenders might feel that you cannot take on further loan payments. For example, if your monthly income is Rs. 80,000 and you spend Rs. 60,000 on making loan payments, you have a tiny amount left to spend on personal expenses. In this case, lenders are likely to feel that you will be unable to afford further loan repayments.
5) Taking on more unsecured debt
If you have a high proportion of unsecured debt, lenders will not be willing to take the risk of lending to you. But what does unsecured debt mean? Unsecured debt comprises loans taken without collateral, for example, a personal loan. You must possess a higher percentage of secured loans (like a home or auto loan) as compared to unsecured loans. This will make your application for a loan more likely to get approved.
6) Living in a particular postal code
As strange as it might sound, it often happens that merely living in a ‘high-risk’ locality could cause loan rejection, even though you have the a good credit score. By means of statistical data, banks possess a list of neighbourhoods that have a high incidence of default. If you live in those areas, you might be rejected despite your good credit record.