Riding your dream two-wheeler is an exciting feeling. However, buying a two-wheeler usually requires taking a loan unless you have savings set aside. While many two-wheeler loan applications get approved easily, it is not uncommon for some applications to get rejected. Yes, there are many valid reasons for two-wheeler loan rejection!
If your two-wheeler loan application has been rejected, don't lose heart. This blog post will explore the steps you can take to get your loan approved.
Reasons For Two-Wheeler Loan Rejection
Before we look at what you can do after a rejection, let's first understand the common bike loan rejection reasons in the first place:
Low Credit Score
One of the main reasons for loan rejection is a low credit score. Banks and NBFCs check your credit score to determine your creditworthiness. If your score is below the cut-off set by the financial institution, your application can be rejected. For two-wheeler loans, most financial institutions require a minimum CIBIL score of 650-700*.
Serving Too Many Debts
Financial institutions analyse your debt-to-income ratio to determine if you have the capacity to repay the loan. If your existing EMIs and expenses exceed 40-50%* of your monthly income, they may perceive you as credit unworthy and reject the application.
Irregular Income
Most lending institutions prefer salaried applicants with a stable income source. If you are self-employed, a freelancer and do not have documents that showcase steady income for a few years, you may face loan rejection.
Errors In Documentation
Incomplete or incorrect documents is one of the reasons for two-wheeler loan rejection. Ensure you provide all required documents like identity proof, address proof, income proof, bank statements, etc. Rectify any factual errors and resubmit the documents.
High Tenure And Loan Amount
If you have applied for a very high loan amount compared to your income or opted for a longer repayment tenure, financial institutions may reject the application. Try to maintain the EMI under 30-40%* of your monthly income and opt for a shorter loan tenure.
Steps To Take After Two-Wheeler Loan Rejection
Now that you understand the reasons for rejection of the two-wheeler loan application, here are some constructive steps you can take:
Understand the Exact Reason for Rejection
Firstly, contact the bank/NBFC immediately and try to understand the specific reason for rejection. Get complete clarity so you know how to address the issue in your next application.
Maintain Calm and Avoid Multiple Applications
It’s natural to feel disappointed if your loan application gets rejected. However, avoid applying aggressively to multiple banks or financial institutions, as too many loan inquiries on your credit report can hamper your chances further.
Review Credit Report and CIBIL Score
Order a free copy of your credit report from CIBIL to review your score and credit history. Check for any errors or discrepancies that may have led to rejection. If there are any mistakes, work on getting them corrected.
Pay Off Small Debts and Credit Card Dues
If you have multiple loans or credit cards with pending dues, make an effort to pay off the small-value debts first. This will reflect positively on your credit report. Also, avoid missing EMIs or credit card payments in the interim before you reapply.
Avoid New Credit Applications Temporarily
Before you apply again, avoid taking any new loans or making big-ticket purchases on your credit cards. New credit applications make banks perceive you as credit-hungry, hampering approval chances.
Consider Getting a Co-applicant or Guarantor
One way to improve your chances of loan approval is to apply with a co-applicant who has a higher income or better credit profile than you. This way, the risks get shared. Adding a guarantor also provides additional security to the financial institution.
Improve your Debt-to-Income Ratio
If your existing EMIs are too high, reducing your repayment capacity, consider prepaying or refinancing any loans. This will bring down your debt obligations and improve eligibility for fresh loans.
Choose a Lower Loan Amount
Instead of the maximum loan amount, apply for a lower amount that you are comfortably able to repay as per your income. Accepting a lower loan amount is better than facing rejection.
Provide Strong Income Proof
Financial institutions may have felt insecure about your repayment capacity if your income proofs were not clear or strong enough. Provide updated proofs like salary slips, bank statements, ITRs, etc., to establish your income level.
Wait for Some Time Before Reapplying
Take a few months to work on improving your credit score and overall credit health. Build a stronger application and reapply after at least 6 months*. Don't make repeat applications frequently, as it raises red flags for banks and other financial institutions.
Summing Up
Understanding the reasons behind two-wheeler loan rejection can help you take proactive steps to improve your chances of approval. By addressing issues such as low credit scores, high debt-to-income ratios, irregular income, documentation errors, and excessive loan amounts, you can increase your eligibility for a loan. Remember to maintain a positive credit history, avoid impulsive credit applications, and consider strategies like co-applicants or guarantors to strengthen your financial profile.
FAQs
1. Can I apply for a loan again after being denied?
Yes, you can definitely reapply for a loan even if you have been rejected earlier. However, it is advisable to wait for at least 6 months* before reapplying and understanding the reasons for rejection of a two-wheeler loan application in the first place. This gives you time to improve your credit score and financial profile.
2. What happens if I apply for a loan twice?
When you apply for a loan, the bank does a hard inquiry on your credit report. Too many loan inquiries within a short period send a 'credit-hungry' signal to banks. This significantly reduces your chances of loan approval.
3. Does loan rejection affect credit score?
A single loan rejection generally does not impact your credit score immediately. However, making multiple loan applications within a short span and facing frequent rejections may impact your credit score. Too many inquiries and rejections give the impression that you are desperate for credit and unable to manage it well.
4. What documents do I need to reapply for a two-wheeler loan?
When you reapply for a bike loan after rejection, ensure you submit all the required documents again - identity proof, address proof, income documents, bank statements, etc. Rectify any errors or discrepancies in the previous documentation. Also, provide any new or additional documents to strengthen your credit profile.
5. How can I improve my debt-to-income ratio before reapplying?
Pay off expensive debt obligations, avoid new loans or credit card spending, consider transferring balances to lower-interest products, review expenses and reduce unnecessary spending. All this will help reduce your overall debt burden and improve your debt-to-income ratio.
