Loans are a smart way to manage your finances when certain expenses cannot be met in one go. In such situations, availing credit in the form of loans can help bridge your needs.
There are two ways in which borrowing is possible: i.) conventional method of approaching financial institutions, or ii.) by way of a finance app. While approaching a financial institution and seeking necessary approvals can be time-consuming, a finance app loan can shorten this entire process. Digitisation has helped fill the gap between the demand for these loans and offerings from financial institutions, thus reducing the time lag of the entire process.
Since easy credit is available, it often leads to missing the nitty-gritties for subsequent loans, resulting in the rejection of your application. This article elaborates on how you can become a smart buyer and avoid these rejections.
Avoid impulsive borrowings: Borrowed funds can be used for a variety of purposes. Since some loans have no restrictions on end use, a few ignorant buyers tend to use this money to fund their desires. It is not advisable to rely on borrowed funds for these desires; you need to stay away from impulsive buying. It can not only lead to a debt trap, but also in the rejection of your loan application when you really need it. Moreover, some of these loans are offered with hefty interest rates and it is essential that you completely understand these terms before they pave the way to a debt trap.
Borrow only what you need: The amount you borrow should be well within your repayment capacity. If you have fixed commitments towards other ongoing loans, make a thorough estimate of your disposable income after other expenses. This way, you can ensure that the burden of EMIs isn’t felt. Generally, it is advisable to keep your loan payables less than 50% of your monthly income. Thus, you don’t end up compromising on the necessities to repay these loans.
Try to keep the tenure short: Availing credit for a longer duration may seem lucrative as a loan borrowed for longer tenure will mean more affordable EMIs. But the reality of a longer repayment schedule means a higher amount is paid towards the interest. Whenever you borrow money, make sure the tenure is short and avoid high interest payments.
Delayed payment: Delayed payments are among the leading reasons why frequent borrowers end up with rejected loan applications. At first, it may not seem like a huge deal, but it directly impacts your credit score. A bad credit score leads to lenders not willing to finance your application. Financial experts recommend settling the debt payments on priority without any alternative use of that money for saving or investing. Further, a delay in payment attracts hefty penal charges along with additional interest. This can be avoided by ensuring the payments for your existing loans are made on or before their respective due dates.
Pay attention to your credit score: Usually, the obvious goes unnoticed. Monitoring your credit score before applying for a loan can help avoid rejection. Any case of unpaid dues negatively impacts your credit score and should be settled. As discussed above, do not delay repayments as it has an adverse bearing on your credit score. It is also advisable to not max out your credit cards as it reflects a sign of insufficient income.
These are some ways how new and experienced borrowers can avoid rejection of their loan applications. Most of these points are general knowledge but can often be missed while considering the different factors that lead to a loan application rejection.