Bank: what to do if you are refused a bank loan

By Rishi Mehra

It is often believed that getting a bank loan is easy in today’s consumer-driven world, but often times a bank loan can be turned down. We tell you what to do in case a bank has refused your loan application.

I found why: The first thing to do if you have been refused a bank loan is to find out why. It is very important to know the reason as there can be various reasons and implications for loan denial. Sometimes it can be a minor issue, like address verification that is inconclusive, but sometimes it can be a more serious issue, like bad credit. It is important to know the reason because sometimes we have no idea of ​​something in our files that can alert lenders. If you are refused a loan, the first thing to do is always find out why.


Less income: When the bank considers that your income is not sufficient, it may decide not to lend. Banks want to make sure that the borrower has the ability and capability to repay the loan and that is why banks want detailed documentation of your sources of income and bank account details. When your income is not disproportionate to what the bank is comfortable with, banks will refuse to lend you. If you have been refused a loan, check to see if the bank thinks your income is not sufficient.

Bad credit score: A bad credit rating is often the most common reason a bank refuses a loan. For example, a CIBIL score is between 300 and 900 and anything around 750 for an individual is considered good. CIBIL says 79% of loans are approved for people with a score above 750. Similarly, for companies, there is the Companies Credit Report (CCR) which ranks companies on a scale of 1 to 10, 1 being the higher and better. rating that a company can get. The ranking is only provided to companies that have a credit exposure of Rs. 10 lakh to Rs. 10 crore and CIBIL indicates that 70% of companies rated 4 and above tend to get a loan. If you have been refused a bank loan and the credit rating is in question, get a detailed report from the credit rating agencies.

Correct errors in credit scores: Once you have obtained your detailed credit report (costs around 550 rupees for an individual and 3,000 rupees for a company), go through it in detail. There are chances that there is an error in the credit report. For example, it could be a loan that you paid off but is still pending. If you find any errors, talk to the rating agency and have them fixed.

Look for an alternative: Each bank has different lending criteria and guidelines. If one bank refuses to lend, you may want to try another. Always try your own bank and branch before looking elsewhere, but if one bank doesn’t work, you can try another. Regional co-operatives and rural banks sometimes have less stringent criteria and it may help to try a loan from one of these banks.

Larger down payment: If you take out a bank loan for a purchase, such as a house or car, you may want to consider making a larger down payment and thus reduce the amount of money you need as a loan. This would mean that your total repayment obligation decreases and EMIs could become more manageable in the eyes of the bank. This, however, would be difficult if you need a loan for your business. In this case, you can consider applying for a loan of a lower amount and ask the bank’s opinion on the amount they would agree to extend.

Repay the debt: There may also be a case where your existing debt is too high to get a new loan. Normally, banks would want a debt to income ratio (DTI) of around 35% and anything over 40% is generally considered risky. Everything from your personal loan, car loan, home loan, and even your credit card balance is taken into account when calculating your DTI. If your loan was rejected because your DTI is too high, you may consider paying off or clearing some of your outstanding loan amounts before applying for a new loan.

Obtain a guarantor/co-signer: If your income is not sufficient to get a loan approved, you can have someone guarantee it for you. It can be anyone from your family and friends, but someone who will vouch for your liability and promise to repay the loan to the bank in case you cannot.

Provide guarantees: Sometimes providing collateral, which can be an asset like a house, can reassure a bank and reduce its risk outlook. The guarantee is a guarantee for the bank, where if you do not repay, the bank can recover its money by taking over the guarantee.

Stop applying: If your bank loan is refused, take a step into the bank and find out the reason. Do not keep applying incessantly and in fact, it can turn out to be very harmful. Every request from a bank to your credit rating agency has an impact on your rating. If you don’t get a loan yet, stop applying and re-examine your financial situation.

The author is, CEO, Wishfin.com.

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