The little luxuries of our daily life are the ones that bring us the greatest happiness – like taking a vacation, buying expensive appliances or latest electronic gadgets, taking the long-awaited trip, or home renovation expenses. If we have savings we can meet such expenses but in case we are short of savings then we have to depend on a loan.
Small personal loans are readily available and help people meet such immediate financial requirements. This type of loan that is taken out to meet urgent but small everyday requirements fulfills all your needs and you can pay back in easy and affordable EMIs.
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Small personal loans are an excellent source of relief in times of financial distress. There are several banks, NBFCs and other financial institutions where you can apply for small loans online easily. Small personal loans are unsecured in nature. That is why a lot of paperwork is required to get approval on a personal loan application. At the same time sometimes loan applications get rejected. Here are some of the common small personal loan rejection reasons.
Personal Loan Rejection Reasons
1. Numerous Inquiries
The lender asks about a borrower’s credit score each time they submit an application for a loan. A high volume of these inquiries over a short period of time suggest that the person is experiencing financial strain. This has the result of making lending organisations reluctant to give the borrower a small loan. In order to enhance your chances of approval and loan disbursal without harming your credit score, it is advisable to just apply to one lender if you’re seeking a small personal loan.
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2. Low Credit Score
A low credit score considerably reduces the chances of getting a loan approved. Poor repayment history or defaults are indicators of a low credit score. It deters financial institutions from making loans and frequently results in rejection. To be eligible for small personal loans and other forms of loans, one must have a good credit score.
Related: How can you get a personal loan on a low CIBIL score?
3.Incomplete Documents
When submitting your loan application, make sure to include all required documentation. Applications may be rejected if necessary supporting documents, such as pay slips or IDs, are missing. Banks’ offline loans typically require extra paperwork and other forms of evidence. This situation raises the likelihood that some crucial paperwork will go missing and the loan will be declined.
4.Too Many Pending Loans
Banks can access your financial profile even if you have taken loans from third party banks. That is why it is advisable to take loans only when necessary. Also one must ensure timely payment of installments. If you have multiple ongoing debts with banks and NBFCs, your chance of availing a small personal loan decreases.
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5. Low Pay
Typically, a low income suggests a low capacity to pay back. If a potential borrower’s loan request exceeds the lending institution’s assessment of the borrower’s capacity to repay the loan, the lending institution can be reluctant to grant it. If you apply for loans that are smaller than your overall income, it will enable you to make scheduled payments.
6.Job Instability
Financial stability is highly required when it comes to providing you a loan. If you switch jobs frequently or do freelance work which is unstable, there is a high possibility that your loan application will get rejected.
7. A High Credit Usage Rate Currently
To be able to get loans in challenging situations, one must maintain a healthy credit usage habit. Do not utilize more than 30% of your available credit. Existing debt makes getting a loan more difficult, especially if the overall amount of debt surpasses 30% of the borrower’s available credit.
Read this: What Is Debt Consolidation And How To Use It As A Tool To Come Out Of A Debt Trap?
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There are several reasons why small loans are needed, thus there is always a need for them. Your application will be far more likely to be accepted if you don’t make the errors we’ve covered in this blog.
Chit Funds As An Alternative To Taking Small Personal Loans
However, there is another way to get instant finance where you don’t have to visit a bank multiple times, stand in queues, or go through the hassle of submitting paperwork to avail yourself of a small loan for simple needs. You can use chit funds which is a savings cum borrowing tool to get instant finance whenever you need. The procedure is easy to understand, quick, and transparent. Chit fund platforms are very helpful for potential borrowers who have the requirement of instant finance. Let us understand how.
Chit funds may sound like a completely different kind of financial instrument. But in many ways, chit funds can help you in getting rid of the personal loan debt trap. Chit funds act as a saving as well as a borrowing tool when we need money urgently. In a chit fund saving scheme, a group of subscribers save a fixed amount of money every month. For expenses that you are likely to incur in the short to medium term, you can contribute into an appropriate chit fund scheme for a tenure of 2-3 years. You can save money from your salary to invest in chit funds each month.
In a chit fund, the number of months for which the investment is made is the same as the number of members in the scheme. Every member gets a turn to take the total amount collected in a month. The member who gets the money is decided based on a bidding system. So those who are in need of money in a particular month participate in the bidding, and the member who bids the lowest is given the total amount of pooled money. No worries of debt or interest!
God forbid if you are faced with a financial emergency, the chit fund gives you a quick liquidity option to tide over the situation. In a chit fund scheme, even if you take out the entire amount early, your monthly payments cover both the principal and interest. In this way, you will be debt free at the end of the tenure.
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Benefits of Borrowing from Chit funds
1. Zero Documentation
Traditional loans require applicants to submit various documents before processing. They look at various aspects to ensure that you qualify for the loan, a requirement that can easily derail your efforts due to the sheer amount and nature of documents involved. On the other hand, if you borrow from chit funds there is absolutely no paperwork required to get loans. It’s purely based on peoples trust amongst each other.
2. No Need for Collateral
Small loans online require applicants to get a guarantor or some other form of security like collateral. You don’t need to worry about any such collateral while borrowing from chit funds in times of emergency.
3. Loans At A Cheaper Rate
The borrowing rate is determined by the participants and not any external agency. Usually the rate can be much lower than the banks
4. Higher Yield
The rate of interest which you receive on the savings is higher (10%-15% p.a.) as compared to fixed deposits or recurring deposits (3%-6% p.a.).
5. Easy EMIs
In many cases, acquiring small loans online is not the issue, but repaying can surely become one. Banks often ask for exorbitant interest rates and ask borrowers to pay the amount in a small window. While borrowing from chit funds there is a nominal interest rate and provides you with the opportunity to spread your EMI as per your wish.
Read this: Top 6 Ways to Buy Mobile on EMI Without Credit Card
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6. Instant Approval and Funds Disbursal
Sometimes the application approval and funds disbursement of small loans online can cause delays in circumstances where every second counts. On the other hand there is no delay in disbursement of payments. Here you bid the amount and the total amount is transferred to your bank account.
Related: 8 Ways to Borrow Money In India
