Personal loans are an attractive option for many people in India who need financial assistance but do not want to mortgage their assets. However, despite personal loans’ popularity, getting one approved can take time and effort. Lenders often reject loan applications for various reasons, such as low credit scores, high debt-to-income ratio, lack of collateral, or employment history. To avoid loan rejection and increase the chances of getting approved with a more robust application, it is essential to understand the four L’s of personal loans: LTV, Loan amount, Length of employment, and Loan to Income ratio.
LTV (Loan-to-Value) refers to the amount of money you can borrow relative to the value of the collateral you provide. In India, most personal loan lenders require you to provide collateral such as property, jewellery, or a fixed deposit. If the value of your collateral is less than the loan amount, your loan application may be rejected. To avoid this, you should always ensure that your collateral has a higher value than the loan amount you are applying for.
The loan amount is another crucial factor that lenders consider when evaluating loan applications. In India, personal loan lenders have a minimum and maximum loan amount limit. Your application may be accepted if your loan amount is within the minimum limit. On the other hand, if the loan amount is more than the maximum limit, you may not get the total amount you are looking for. To avoid this, you should only apply for the amount you need and can afford to repay.
The length of employment is another factor that lenders consider when evaluating loan applications. In India, most personal loan lenders require applicants to have a stable employment history. If you have recently changed jobs, your loan application may be rejected. To avoid this, you should wait until you have been employed in your current position for at least six months before applying for a personal loan.
The loan-to-income ratio is the amount of debt relative to your income. In India, personal loan lenders use this ratio to determine your ability to repay the loan. If your debt-to-income ratio is too high, your loan application may be rejected. To avoid this, you should always ensure that your debt-to-income ratio is within the lender’s limits. You can lower your debt-to-income ratio by paying off existing debt or increasing your income.
In conclusion, to avoid personal loan rejection, it is essential to understand the four L’s of personal loans: LTV, Loan amount, Length of employment, and Loan to Income ratio. Considering these factors, you can increase your chances of getting approved for a personal loan. However, if you are having trouble getting approved, consider fintech companies as an alternative to traditional lenders like banks. These companies offer loans without collateral and a credit score, making it easier for people with low credit scores or limited income to get financial assistance.