Purchase of a property plays an important aspect in one’s life and if it is about purchasing a house then it is a dream becoming reality. To ensure this dream is fulfilled, a lot of efforts is required and savings play an important role for down payments. This is because if high loans are taken then interest is also high. Savings are normally used for down payments, whereas the loan is taken for the balance amount. While applying for a loan, the loan seeker expects the application to be approved but gets disappointed if the application gets rejected. Here we analyze the possible reasons for loan rejections.
One of the important reasons for loan rejection is the CIBIL score. This is given by Credit Information Bureau (India) Limited, India’s first credit information company. This organization collects and maintains records of both individuals and commercial entities with regard to loans and credit cards. These records help them to analyze the credit ratings of individuals and the same is passed on to lenders and banks. This data given by CIBIL is called CIBIL score and normally ranges between 350-950.
Higher the score, easier it gets for a loan approval. These scores are influenced by various reasons as stated under:
1. Loans taken to meet day-to-day requirements – These kinds of loans are called hand loans or personal loans. These loans are attractive as they require minimum formalities can get easily approved in a day or two. So people tend to apply for the same. But, if these loans are on regular basis and are high then they will become a reason for home loans rejection. These along with loans against assets like gold or building can become reasons for housing loan rejections.
2. Acting as guarantor – Many times people on good faith act as guarantor for another person who is taking a loan. But, the implication is if the loan taker fails to pay the amount on time then it becomes the responsibility of the guarantor to do so, affecting CIBIL score considerably.
3. Cheque bouncing – If you have issued a cheque to somebody but the cheque bounces due to unavailability of required funds in your account, it will be considered as a criminal offense. Along with this, it will also negatively impact the CIBIL score.
4. Credit cards and improper usage – Owning more credit cards is considered status symbol by many but in reality, the CIBIL score gets reduced due to this. In the same manner, full usage of credit limits also affects CIBIL scores as it gives an indication of liquidity problems for individuals.
5. Repayment Capacity – Here both psychological and economic factors play an important role. The lenders are hesitant to approve loans for certain professions like traveling, self-employed, contract employment, and the like. They view that their repayment capacity changes constantly so it is risky. But, in the same manner, if a person is a regular salaried individual, a government employee, or a reputed company employee then they are considered to be safe for giving loans.
6. Other Factors – Filing of ITR, age and family size are other important factors due to which applications can get rejected.
The above stated can be the possible reasons for loan rejection, but internal policies and terms and conditions of banks or lenders also play an important role in the event of loan rejection.