Banks have in recent times greatly increased their focus on lending. Consequently, the loan disbursal process has gained speed. At the same time, banks are worried over the increasing number of loan defaults and are unwilling to waive off certain credit norms.
Every time your loan application is rejected, it augurs badly for your credit score. Before you reapply and dent your credit score, you should make sure that your employment status is not the reason for rejection of your application.
1. Are you a frequent job changer?
Banks attach a lot of importance to the job stability of the applicant. While reviewing a loan application, many banks consider it favorably if you are employed with the same company for a minimum period of 6 months.
So if you have a track record of changing jobs every year or every alternate year, you are putting yourself in the high-risk category. Banks will infer that there is a high probability you will change jobs in the future or that you may end up without one, increasing the likelihood of loan default in their considered view.
Suppose you are serving a notice period with your last employer, without any other job offers in hand. In such a case, your loan application will not be approved. You will have to wait until you get an offer from a new company. Your loan can be sanctioned based on an appointment letter, but disbursement is likely to happen only once you receive your first salary.
2. Working in proprietorships with salary in cash
Your employer can make a difference between approval and rejection of your loan. If you work with a well-known multinational company, you are sure to get a loan approval fast. On the other hand, if you are employed with a proprietorship company and receive your salary in cash, the chances of you getting your loan approved are quite slim even if you earn a high income.
When you are being paid in cash, there is no documentary evidence for your monthly income. This obviously puts you in a high-risk category with a likely loan rejection.
Instead of being paid in cash, insist on being paid by cheque or through online transfer. Having a documentary evidence of your earnings will help you get loan approval.
3. NRIs working on contract
Banks have their own yardsticks for loan approval. Even if you work overseas and earn well, your employment status is a matter of concern for the bank. If you are employed on a contractual basis, and not as a regular company employee, your loan may not be approved.
At the same time, loans of contract employees in India can be approved based on the nature of job and profile of the applicant.
This is because chances of loan approval largely depend on the regularity of your income. Banks are extra cautious in case of NRIs, as they are not sure about the job continuity abroad and do not want take risks.
4. Having hazardous jobs
If the nature of your job puts your life at risk, the chances of you getting a loan approval may be reduced substantially. For example, if you work in a high-risk job at a chemical factory, banks may be reluctant to offer a long-term loan without loan cover insurance. Even journalists stationed in a high-risk area to cover war, riots or natural disasters have lesser chances of getting loan approval than their colleagues stationed at other less-risky locations.
Most banks and NBFCs grade loan applicants as 'high risk' and 'low risk'. If you switch your high-risk job to a routine one, your chances of loan approval with the same salary increase. Taking a loan protection plan along with loans also helps in such cases.
5. Low work experience
In today's fast-paced life, many youngsters new into their jobs apply for loans. From a credit card to an automobile loan or a personal loan, today's youngsters quest for loan starts early in life. However, work experience is also a prime factor for loan approval. Unless you have work experience of at least one year as a permanent employee in a reputed company, opting for any kind of loan may be futile.
Instead of applying for a loan and facing rejection, first check with the bank whether you are eligible for a loan. Based on your professional degree, some banks allow loans after a minimum period of one year in employment.
It is advisable to wait while you garner valuable work experience than harm your credit standing by having your loan request rejected. Your employment status is not only important for your career, but can also be the reason behind your loan approval or rejection.