Applying for a home loan? Here are some key things which you need to keep in mind in order to ensure your loan application is not rejected by the bank or any financial institution.
Lenders consider many factors before granting any loan. The criteria to determine the eligibility and quantum of a loan differs from one lender to another. Improving your credit score, ensuring timely payment of credit card dues, closing all earlier loans and increasing one’s income levels are more common. However, there are certain other indirect reasons which could be causal for the rejection of the loan. Here are few reasons for loan rejection which normally people may not be aware about:
Frequently switching jobs
Banks stress a lot on job stability and certain banks have even made it mandatory that the applicant needs to be employed with a particular company for three or more years to be eligible to get a loan. The banks may also take into consideration the stability of the company one is working for while processing a loan application. So, it is highly advisable that the applicant stick to a particular job for a minimum period of a year to get the loan sanctioned.
Residential address on the defaulter list
If the applicant bears the same address as someone who has been a defaulter for either loan repayment or credit card dues and which has been reported to CIBIL, chances of loan rejection increases. Banks often have negative PIN codes based upon historical delinquency experience, where they may not lend. This is because the residential address will match with a disproportionate number who are on the defaulter’s list.
Profile doesn’t fit into the bank’s internal policy
Internal policies for some banks may dictate that some geographic area or credit profiles are negative for lending and the bank won’t be able to sanction loans. In such case, one need to discuss it with the bank and provide other security in the form of a guarantor or in the form of insurance policies, collateral securities, fixed deposits, etc. in order to assure the banker about their repayment ability.
Banks do not fund for old building
A bank will not fund old buildings especially if the building is more than 20 year old. The criteria of the age of the building vary from one bank to another. But, the land value will always be considered by the bank. One can negotiate for a lesser loan amount by adding in some form of security and one can also increase the down payment to get the loan sanctioned.
Loan application has been rejected before
Every bank has records of the entire rejected loan applications in their database or can obtain a history of loan application enquiries from CIBIL. When the applicant applies to a bank, the rejection will show up in the credit profile check and this would probably affect the credit worthiness of the applicant. It is highly advisable that one should not keep on applying for loans without any reason.
Poor Credit Score or Credit History
The credit score ranges from 300 to 900. The closer you are to 900, the more confidence the credit institution will have in your ability to repay the loan and hence, the better the chances of your application getting approved. Anything above 750 is considered a good credit score. All banks usually look at the credit score as one of the many checks they do before advancing a loan.
A good score alone does not mean a person can get the loan he wants. Bankers additionally look at the status of previous loans and the payment history on such loans. A previously settled or a written off loan is likely to impair the ability to avail more loans. Credit history, outstanding loan value, loan types, recent credit events, etc. affect ones credit score.