Reasons Why Banks Reject a Loan
You are in dire need of a personal/home loan and the bank just rejected your application. Dejected and let down, before you apply for the loan with another bank, it might be worthwhile to first understand why the first bank rejected your loan application.
Understand that the bank gets to benefit a lot from the loan that they give out to you. With the ever increasing interest rates, they will eventually get back much more than what you borrowed. However, giving out loans for a bank is very risky at the same time. It can really jeopardise its cash-flows if borrowers start defaulting on their payments. For this very reason, banks first evaluate their potential borrowers to see if the person is a default risk and approve the loan only if they are sure that you will return their money.
Now, you are at a good salary package, have no outstanding loans and have a good credit rating with CIBIL. Both features make you eligible for a loan. However, there are other things that a bank considers:
Let's start with your job and income. You earn well, but do you have a stable career? Have you hopped way too many jobs in the past then the bank feels that your income/job tomorrow is not guaranteed which is a big risk for them. Most of the banks, insist that you should have had your current job for at least the past three years to be eligible for a home loan. Also, if the company that you work for doesn't have a promising future then that too has a negative effect since you job tomorrow is not secure.
Also, evaluate if someone back home has been a defaulter on bank or credit card payments or not. Defaulters are blacklisted in CIBIL records and so are their addresses. If you apply for a loan from the same blacklisted address then you would automatically be denied a loan too.
As long as you have good credit ratings and your own default is not the problem, rejections can be discussed with the bank and if you can convince them by leveraging guarantors and collateral against the loan, most banks will reconsider their decision.
Keeping the above points in mind will help you better prepare for a loan application. However, if one is denied a loan, don't blindly approach another bank. Rejected loans are documented in CIBIL ratings, and the very rejection lessens your chances of getting a loan. So negotiate with the bank and move to a different one only after one has made amends to events that got your first loan rejected.