CIBIL score is one of lenders’ most important factors when evaluating loan applications. It gives them an idea of an individual’s creditworthiness and ability to repay the loan. But, even with a good CIBIL score, loan applications can still get rejected. This can be a frustrating experience for the loan seeker who is confident of their credit standing. This blog will explore why a loan application with a good CIBIL score can get rejected. Before we dive in, it’s always a good idea to check your CIBIL score regularly to ensure that it’s accurate. You can access a free CIBIL score check on the CIBIL score app to see where you stand.
Reasons For Loan Rejection Even With A Good CIBIL Score
Some of the reasons for loan rejection include the following:
CIBIL Report Card
The remarks section of a CIBIL report provides additional information about your credit history and can highlight any adverse events, such as missed or late payments, defaults, or legal proceedings. If the lender sees any adverse remarks in your CIBIL report, they may reject your loan application or approve it with a higher interest rate to compensate for the increased risk.
Loan’s guarantor default
A guarantor is a person who co-signs a loan agreement and takes on the responsibility of repaying the loan if the borrower cannot do so. If the guarantor defaults on a previous loan, it can impact the lender’s perception of the borrower’s overall creditworthiness, and the loan application may be rejected. In such cases, the lender may view the borrower and the guarantor as a higher risk, and the guarantor’s default may raise concerns about the borrower’s ability to repay the loan.
When evaluating a loan application, lenders consider the number of outstanding loans and your debt. If you have a high level of debt and multiple loans, the lender may see you as a higher risk and reject your loan application, as it may be difficult for you to make all the loan payments on time. Additionally, if you have recently applied for several loans in a short period, the lender may see this as a sign of financial instability and reject your loan application.
Debt overburden is when an individual’s debt obligations are too high relative to their income. This makes it difficult for them to repay their debts and can increase the risk of default. Lenders consider the debt-to-income ratio or the amount of debt an individual has compared to their income when evaluating loan applications. If the debt-to-income ratio is too high, the lender may reject the loan application as it suggests that the individual has too much debt and may not have enough income to repay the loan.
Past Default On Payment
Your CIBIL score reflects your credit history and payment behaviour, and a history of defaulted loan payments is a red flag for lenders. It suggests that you may need a more vital track record of repaying your debts and that there may be a higher risk of default with your loan. Lenders consider these types of negative marks when evaluating loan applications. If your credit history includes multiple defaulted loan payments, your loan application may be declined, even if your CIBIL score is good.
You can avail free CIBIL score check facility on the CIBIL website on the CIBIL score app. However, remember that this score may not be updated in real-time and may not be the same score lenders see. Some banks and financial institutions also offer customers a free CIBIL score check.
A good CIBIL score does not guarantee loan approval. There are various factors, such as employment status, income, outstanding debts, loan repayment history, etc., that lenders consider before approving a loan application. Hence, individuals must check their credit scores regularly to keep track of their financial status and work towards improving their chances of loan approval. A free CIBIL score check can be done through various online portals, and it is advisable to check the score at least once a year to avoid any surprises during loan application.