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Why are loans rejected in spite of high credit scores?

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Why are loans rejected in spite of high credit scores?

You may think that a high credit score will lead to your loan being easily sanctioned. However, in some cases, this might not quite happen. If you do not meet the other eligibility criteria for the loan, your loan will not be sanctioned even if you have a high credit score. Here are some of the reasons why a loan may be rejected in spite of a high credit score:

  • Minimum monthly income- Most loans come with an eligibility criteria where the applicant should have a minimum monthly or annual income. The income criteria may vary depending on where the applicant stays, i.e. semi-urban, metro, rural and urban zones. People who fail to meet the income criteria may have their loans rejected even if their credit scores are on the higher side.
  • Age- The age for applying for loans is usually limited to 60 years. Many lenders have age criteria between 25 and 55. This is something that you should check out before applying. Those who do not meet age requirements will stand to have their loan applications turned down. Those who are approaching their retirement ages can have spouses or children as co-applicants in order to improve their prospects of getting a loan.
  • Guarantor for other loans- If you are a guarantor for a loan taken by someone you know, you are also responsible for smooth repayment of the same. The eligibility will be lowered based on the outstanding loan amount that you have guaranteed. This may lead to the application being rejected altogether.
  • Job Hopping- Frequently changing your job may lead to the lender considering your professional career as relatively unstable and hence your creditworthiness may go down in the eyes of the lender.
  • FOIR (Fixed Obligation to Income Ratio)- FOIR is the chunk or percentage of your monthly income which has to be deployed for paying EMIs inclusive of the new loan you are applying for and other obligations like premiums for insurance and rent among others. Lenders usually prefer applicants with 40-50% of FOIR. Anything higher and your loan application may be rejected.
  • Professional Profile & Employer- The job profile is also assessed by several lenders along with the employer’s profile. Government employees and those employed with leading MNCs and corporate companies are also preferred. Employees who have risky jobs also have to contend with lower chances of loan approval. In this scenario, NBFCs may approve your loan even if banks do not.

 

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