- Is your loan rejected by the lender? If so, what should you do next?
- Evaluate alternatives plus keep an eye on the reasons for loan rejection
The reliance on loans is high when we don’t have adequate savings to meet our needs or deal with financial emergencies. But it comes as a rude shock to many whose loan applications are rejected by the lender. If there’s a financial emergency, you won’t have any choice but to arrange the required amount from somewhere. While some manage to do so, many can’t, causing more concerns for the latter group of people. In case you have faced a rejection of personal loan or any other unsecured loan, you might be feeling low. But you can’t stay like that! Yes, you need to meet your requirements as well as keep your credit aspirations in order. We can help you do so by suggesting the plan of action ahead in this post. So, keep reading!
Arrange the Required Sum to Meet Your Needs First
If you have savings in the form of fixed deposits, mutual funds, shares or bonds, you can apply for a loan against the same and get it easily. The reason being loans granted against these financial instruments are called secured loans and lenders don’t require credit score and income to approve them. While fixed deposits, debt mutual funds and bonds can grant you a loan upto 80-90% of the investment value, around 50-60% of shares and equity funds can be offered as a loan.
If the rejected loan application was made for a medical emergency, marriage or education, you have another alternative with you. Yes, you can apply for an advance against your Employees Provident Fund (EPF) account for such purposes. The best part is that this is not treated as a normal loan, rather a withdrawal, meaning you won’t need to return the money back. However, the quantum of advance might not be the same for these purposes, it will vary rather. Let’s check out the amount you can withdraw from EPF plus several other details.
How Much Advance Can You Get from EPF?
Let’s start with the EPF advance for medical emergencies. There’s no criterion for completing any specific service period before applying for a loan against EPF to serve this purpose. You can apply for this purpose anytime but only once against EPF. The EPF advance for medical emergencies is given for the treatment of self, your kids, spouse, and even your parents. You can get an advance of as much as the basic and dearness allowance of the last 6 months or your EPF share with interest, whichever is lesser. You need to get the Certificate C signed by the employer and doctor.
As far as EPF advance for marriage and education is concerned, you can withdraw upto 50% of your contribution, along with interest. You must have been a member of EPFO for at least 7 years. The withdrawal for these two purposes is capped to a maximum of 3 times.
The Second Step – Introspect the Reason of Loan Rejection
Did the rejection happen because of a poor credit score? You can know it from the concerned lender or by looking at your credit report. A poor score will mean some work for you to do before it gets to the desired level. Also important is to check the reason for a poor score, which you can know from the credit report. Most likely, it’s the instance of default or repeated skipped payment that causes a dip in the credit score. If your credit report shows any of the two as a reason, start working on those at the earliest.
If there’s a default, and that too on a personal loan, the credit score must have dipped way below 700, which is considered the standard score one should have before applying for a personal loan and other unsecured debts. The score could also dip hard with instances of skipped payments. Any of the two cases is not good for you.
So, save from your regular routine by curbing unnecessary expenses. Pay the dues on time and stay patient. The score won’t improve overnight! It will take quite a while for the credit score to improve. It will also depend on how far your current score is from the good one i..e 750 and above.
Debt Settlement Can Also Lead to Loan Rejections
If the rejection has happened because you settled the debt in the past by paying the agreed amount to the lender, you are not alone. There are many who face rejections because of this reason. Debt settlement is actually an agreement made between the lender and borrower where the latter can pay an agreed sum, which is understandably much lower than the total due, to the lender and get relieved from the payment obligation. But as you do it and the credit bureau marks it as debt settled based on the report submitted by the lender, you will almost shut the door for any unsecured debts in the future.
In that case, you can apply for a secured credit card against fixed deposits. Don’t worry, you will continue to earn on your fixed deposit. The credit limit of the card can be a maximum of around 80-90% of the value of FD. Now, if you pay the bill of the secured credit card on time, it might increase your credit score faster. This will most likely take your score to 700 and beyond much quicker and put you in a much better position to apply for a loan.
What to Do If the Loan is Rejected Due to Insufficient Income to Pay the Proposed EMI?
This can also be the reason for loan rejection. Even if the credit score is good, insufficient income will not ensure a loan. Ideally, the loan EMI should not constitute more than 50% of your net monthly income (NMI). That 50% criterion is subject to change based on the income group of an individual. People earning less will need to ensure the loan EMI constitutes much lesser. In case of existing loan obligations, the lender will see how much extra you can pay considering your income, existing obligation amount, etc. In case insufficient income comes out as a reason for a loan rejection, ensure you apply for a loan when your earnings are much higher from the present time. If you can’t wait for a loan, you can apply for it against fixed deposits, mutual funds, shares, bonds, etc. Details of such loans are already shown above.
But How Will You Check Your Credit Score?
The credit score is offered by several credit bureaus in India, including CIBIL. You can check the credit score on the website of the credit bureau by mentioning a few details. You can also check it at Wishfin, an online financial marketplace and an official partner of CIBIL, for FREE. Follow the steps shown below to check the CIBIL score at Wishfin.
- Mention your name, date of birth, PAN Card, email address, mobile number, etc
- Click on a checkbox stating ‘ I Agree to Private Policy and Terms and Conditions after reading them
- Click on ‘Submit’
- Your account will be created by following the above process
Post Account Creation
- Click on ‘Login’
- Enter your mobile number and the One-time Password (OTP) received on your mobile number
- The score will appear on your screen, plus details about loan or credit card payments you would have done so far
Remember, credit details remain with the bureau for quite a few years post your last payment date.