Getting rejected for a loan is frustrating, especially when you thought everything was in order. You apply with high hopes, only to receive that dreaded message: "Your loan application was rejected due to XYZ reasons." But what could be the reason?
Banks and lenders evaluate multiple factors before approving a loan. From credit scores to unstable employment, many aspects influence their decision. Understanding the personal loan rejection reasons can help you avoid the pitfalls and increase your chances of approval.
Let's take a look at the top 10 reasons why loans get rejected and what you can do about it.
Table of Contents
Low Credit Score
Your credit score is like your financial guarantor. If it’s low, lenders see you as a high-risk borrower, leading to a personal loan declined status.
How to Fix It?
- Make timely payments on your EMIs and credit card obligations.
- Avoid maxing out your credit limit.
- Check your credit report regularly for errors and rectify them.
- If your score is low, wait a few months, improve it, and then apply again.
A score above 750 usually improves approval chances. Anything below 650 needs better preparation before reapplying for any sort of loan, e.g., loans for travel.
High Debt-to-Income Ratio
Even if you earn well, having too many existing debts can lead to loan rejection reasons. Lenders check whether you have enough disposable income to repay the loan.
How is DTI Calculated?
It’s your total monthly debt payments divided by your monthly income. A high percentage means financial strain.
Solution:
Reduce your debt by paying off credit card dues or EMIs before applying for a new loan.
Unstable Employment History
Lenders prefer applicants with stable jobs. Frequent job changes indicate financial instability. If you've changed jobs multiple times within a short span, your chances of getting a personal loan application rejected increase.
Some banks require a minimum of 6 months to 1 year in the same job before considering your application. So the one thing you can do in this case is stick to a stable job for a longer period before applying for a loan.
Insufficient Income
Lenders have a minimum income requirement. If you don’t meet it, your personal loan declined status is almost guaranteed.
How to Solve This?
- Apply for a lower loan amount that fits your income bracket.
- If possible, show additional sources of income (rent, bonuses, commissions).
- You can apply for emergency loans with a co-applicant who has a higher income.
Banks lend money when they see affordability. Prove you can handle the EMIs, and you’re good to go.
Multiple Loan Applications
Lenders can see if you’ve applied for multiple quick loans in a short time. It makes you look desperate for credit, which raises a red flag.
Why is this a problem?
- Each application triggers a hard inquiry on your credit report, lowering your score.
- It creates the impression that you’re struggling financially.
The Smarter Approach:
- Research lenders and apply only to those where you meet eligibility criteria.
- Use loan comparison platforms instead of applying randomly.
One well-planned loan application is better than five rejections!
Errors in Your Loan Application
A small typo or a mismatched signature can get your application for loans for education rejected.
Common Mistakes to Avoid:
- Incorrect salary details
- Mismatched signatures
- Outdated KYC documents
Double-check before submitting! A clean application means a smoother approval process.
Unpaid Credit Card Bills or Loan Defaults
Lenders check your repayment history. If they see defaults or overdue payments, it’s game over. Even a single missed EMI can hurt your creditworthiness since your credit report (CIBIL, Experian) stores every missed payment.
How to Fix It?
- Clear outstanding bills before applying.
- Set up auto-pay to avoid missing EMIs.
A clean repayment history improves approval chances.
Not Meeting the Age Criteria
Lately, things have been challenging for you. Responsibilities have mounted, and unexpected setbacks have led to this need for damage control. But keep in mind that most banks have an age limit for personal loans (usually 21–60 years). If you fall outside this range, your loan may get denied.
Solution
- If you’re underage, apply with a co-applicant. Rely on an adult. Don’t do it alone
- And If you’re an individual who is nearing retirement, choose for shorter tenure loans.
Age plays a crucial role in lending decisions – ensure you meet the requirements!
Lack of Collateral for Secured Loans
Some lenders require collateral for higher loan amounts. If you can’t provide security, expect a personal loan rejection reason scenario.
Solution
- If you have assets like gold or property, consider a secured loan.
- Otherwise, stick to unsecured personal loans like loans for women with lower amounts.
Address Issues:
Some areas are flagged as “risky” due to high default rates. Lenders rely on internal databases to assess location risk. So, if your address is blacklisted, your chances of your loan application getting rejected increases.
How to Fix It?
- Use your workplace or family member’s address, if allowed. Have a due conversation.
- Try lenders with more relaxed location policies.
Avoid Rejection, Get That Loan!
You can prepare more effectively if you are aware of these grounds for personal loan denial. Don't give up if your loan application has been rejected; resolve the problems, make a smart second application, and get approved. Low-risk borrowers are favoured by lenders. The money is yours if you prove to them that you are one!
Reach out to Creditt+ for hassle-free instant personal loans. After reviewing your financial history, we’ll take the necessary steps to process your loan quickly.
