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5 reasons your loan approval can hit a roadblock despite good credit score

Loan approval emi

Lenders evaluate loan eligibility on the basis of multiple factors like credit score, income, job profile and stability, age, etc. The importance of each of these factors would vary depending on the credit risk matrix used by the lenders and the type of loan applied for. Having a good credit score can certainly improve but not guarantee loan approval.  

Here are 5 reasons why your loan application can get rejected despite having a good credit score:

Ignoring your EMI affordability 

Lenders prefer lending to applicants whose loan repayment obligations, including EMI of the new loan, are within 50 percent of their net monthly income. Those exceeding this limit have lower chances of loan approval. Hence, applicants should aim at keeping their total EMI obligations within the said range after factoring in the EMI of the new loan. Use online EMI calculators to arrive at an optimum EMI for the new loan after considering existing EMI obligations and monthly contributions to crucial financial goals. 

Being guarantor of another loan

Whenever you step in as a guarantor to someone’s loan, you become equally liable for its repayment.

Lenders include the outstanding loan amount of the guaranteed loan as your contingent liability and reduce your loan amount eligibility by the outstanding amount of the guaranteed loan.

Moreover, lenders will also include EMIs of guaranteed loan in your total EMI obligation. Hence, the chances of your loan approval can decrease if your total EMI obligations, including the EMI of the guaranteed loan, exceed 50 percent of your monthly income.

Remember that you cannot withdraw from the existing responsibility of a loan guarantor until the lender and the primary/ co-borrower(s) find a mutually acceptable new loan guarantor to take your place. 

Failure to qualify for minimum income criteria

Most lending products have minimum income criteria for loan applicants. Lenders may also set varying income eligibility criteria depending on your location, i.e. metro, urban, semi-urban and rural areas. As it is often one of the first filters considered by the lenders while evaluating loan applications, those who fail to meet the minimum criterion usually face outright rejection. Given that this criterion can vary across lenders, prospective loan applicants should visit online lending marketplace to find out available loan options basis their monthly income and other eligibility criteria.

Frequent job-hopping

Lenders also consider the loan applicants’ employment history and job stability while evaluating their loan eligibility. Frequent job-hopping may be considered a sign of career instability.

So lenders may hesitate to lend to applicants who tend to frequently switch their jobs. 

Therefore, try to avoid frequent job-hopping, especially if you are planning to take a loan in the near future.

Not falling in the age bracket set by the lender

Lenders tend to factor in a loan applicant’s current age as well as his age at the end of loan tenure while assessing his loan eligibility. Those who do not fall within the maximum age limit set by the lender are usually denied loans. Generally, applicants who are nearing retirement also face difficulty in getting their loan application approved due to the expected dip in their income post-retirement.

Lenders usually prefer borrowers who can complete their loan commitments before retirement.

Hence, those nearing their retirement age should consider adding family member(s) with good credit profile and stable income to boost their chances of loan approval.

(Radhika Binani is Chief Product officer at Paisabazaar.com, with nearly 18 years of extensive experience across financial services, consumer banking and FMCG. At Paisabazaar.com, she spearheads the consumer-focused product innovation platform and is responsible for making a world-class credit score platform that gives consumers access to free credit reports. )


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