A Personal Loan is an unsecured loan taken out by an individual for personal use. The loan amount and repayment period are determined by the lender and are usually based on the borrower's credit score, income, and ability to repay the loan. Personal Loans can be used for various purposes, including debt consolidation, home improvement, medical expenses, and more. The interest rate on a Personal Loan is usually higher than that of a secured loan, such as a mortgage, but lower than that of a credit card. So, a Personal Loan is a way to go for unexpected expenses. But what if your loan application doesn't get approved? We have discussed a few pointers that will help you know what to do in that case.
- Improve your credit score
Check your credit report and address any errors or negative items affecting your score. Because such negative scoring can be the reason behind your loan rejection, the bank will mention the reason for rejection in the letter when your loan application doesn't make it. And if it is poor credit standing, you can start paying your bills on time and reduce debt. This way, you can gradually build a score that will help you borrow a Personal Loan.
- Find alternative lending options
Consider secured loans or peer-to-peer lending as alternative sources of funds. These are your way out of unexpected expenses if the bank does not approve the Personal Loan. As a borrower, you still have the option of secured Personal Loans. In this, you need to pledge your asset to borrow a loan. Well, the loan amount in a secured loan is based on the asset's value. For say, a loan against a fixed deposit is allowed up to 90% of the deposit value. So if you have a deposit of Rs 1 Lakh, you can borrow only Rs 90,000 from the bank.
- Save for an emergency fund
Build an emergency fund to have a cushion for unexpected expenses. In case your loan application gets rejected: you can use the emergency fund. We must be prepare for such times, and emergency funds like FDs or PF deposits are usually a good source to fall back on. Well, this must be your option when you have applied for a loan and the same is disapproved. We can't do much after the loan rejection, we can take control of the financial situation by using the emergency fund.
FDs have a feature of partial withdrawal with which the depositors can withdraw a part of their deposit. And using this option, you can easily meet your financial needs even though the Personal Loan is not approved.
- Look for a co-signer
If your loan application didn't get approved, and there is no emergency fund for you to use, there is another option - a co-signer. With a co-signer, you can increase your chances of getting approved for a loan. Ensure the co-signer is of eligible age because there is a Personal Loan age limit. Meeting the basic Personal Loan criteria of the bank is necessary for the co-signer.
And when you apply with a co-signer, do calculate Personal Loan eligibility amount. Because a co-signer not only helps you qualify for a loan but also helps you get the amount you need.
- Re-apply after a year
In case the loan is not approved due to you not meeting the loan criteria, it is best not to apply for any other loans. Wait a year and re-apply for a loan after improving your financial standing. After that, see your Personal Loan eligibility using the online tools available on the banks' website. This way, you get a rough idea of what you can get and apply for a loan carefully. So this time, your loan won't be get rejected.
- Seek financial counselling
If you are having difficulty managing your finances, seek professional advice to help improve your financial situation.
A loan rejection doesn’t translate to the end of your credibility as a borrower. You can also treat it as an opportunity to improve your credit rating, and apply for better loan options in the future.