Why Did My Personal Loan Application Get Rejected?

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Rejection of any kind never feels good. However, it is an emotion that the majority of us have had to deal with at some point in our lives or the other. 

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When you get a personal loan rejection, it is not really the end of the road for you. There are other types of credit or loan products that you can definitely opt for. But it may help to understand the personal loan rejection reasons in order to ensure that you do not encounter it again when you try applying for loans or credit lines in the near future.

Why Do People Get Rejected for Personal Loans?

When there are so many instant personal loans online, one would assume that getting your application sanctioned is a piece of cake. In reality, that may not always be the case.

There are many several valid and credible reasons that may drive a prospective lender to reject your personal loan application. However, the challenge lies in finding out the exact reason why it may have happened as the lender does not always choose to reveal it to the applicant. This is a frustrating experience as you may have to try and decipher the reason on your own.

Let’s look at common reasons that may result in your personal loan getting rejected.

1. Low or No Credit Score

The credit score is a numerical value assigned to your profile that lender’s check in order to determine the applicant’s creditworthiness prior to sanctioning any type of credit or loan. The range of the score can be anywhere between 300 and 900, with 300 being at the bottom and 900, the top of the ladder. 

Most lenders require a CIBIL score of 750 and above to even consider a personal loan application. A few lenders may accept a lower score, but the interest rates are usually much higher, the loan amount one can get is lower, and the tenure is also very short for such loans. Applicants who have a previous history of defaults may also be rejected. 

Having no credit history and no score may also lead to loan rejections as the lender is unable to assess your financial habits.

2. Multiple Loan Enquiries and Applications

One may have a requirement for a personal loan which drives them to make multiple enquiries and applications with various lending institutions. It is advised to avoid making such repeated enquiries and applications, as it can negatively impact your credit score. Every application made will result in the lender making an inquiry for your credit report to check your score.

Credit bureaus like CIBIL will take into account these inquiries and mention them as part of your credit report. To lenders, your profile may come across as credit hungry and they may question your financial credibility. This in turn may lead to a refusal on your personal loan application. 

Must Read: How to Avoid the Rejection of Your Personal Loan Application

3. Too Many Existing Debts

Existing debts and financial commitments that engulf the maximum portion of your income may also lead to the rejection of your personal loan application.

Prior to sanctioning any loan request, lenders will take an in depth look at any ongoing EMIs including credit card dues before approving your personal loan application. Applicants who are already financially overburdened and are once again applying for a personal loan will be at a higher risk of defaulting on repayments. 

If the lender thinks that you may not be able to repay back the personal loan due to the amount of existing debts that you already have, then your personal loan request is sure to get rejected. Thus, it is advised to keep existing debts to a bare minimum, and at least 50% of your monthly salary to ensure that your application doesn’t get rejected.

Use our personal loan eligibility calculator to get an estimate of the maximum loan amount you may get based on a few parameters such as your monthly income and current obligations (sum of ongoing EMIs). If you need a higher amount, consider adding a family member with a good credit score and stable income as a co-applicant.

4. Eligibility Criteria and Documentation Not Met

Every lender outlines the minimum eligibility criteria that include income as one of the key components for a personal loan request. The applicant has to be able to meet these minimum thresholds in order to be eligible to place the personal loan application with their chosen lender. Failure to do so will definitely lead to a rejection of the request.

Simply meeting the eligibility parameters does not ensure that your loan request will go through with the lender. Submitting incorrect information in the application form, non-submission of documents or submitting unverifiable documents can result in the personal loan application not getting approval from the lender. 

5. Unstable Employment History

The approval of your personal loan is also dependent on your employment history. If you change jobs too often or are unable to show consistent employment across a designated period of time will lead to a rejection of your personal loan request. Working for unregistered companies and cash salary applicants are also often rejected by most lenders. 

Lenders look for stability in your employment history as they wish to minimise the risk of loan default. Hence, individuals with less than 1 year of work experience, or an applicant who has worked for less than 6 months in the current organisation may have their loan request rejected. 

Must Read: 4 Things To Do If Your Personal Loan Gets Rejected

Other Reasons

Here are a few other reasons why a lender may reject your personal loan application:

  1. Lack of proper address proof / income proof / employment proof
  2. The lender may not be able to provide services at your location
  3. Applicant may be younger or older than the lender’s set criteria
  4. If you are salaried, check the lender’s requirement of minimum monthly salary. If an applicant’s salary is less than that amount, their application will get rejected.

Conclusion

Personal loan rejection may add to your financial woes. However, in the event that it does get approved, it is important you know the exact amount of your instalment that you need to repay every month. You can use our EMI calculator for personal loans to get a near accurate assessment.

If you have faced multiple rejections on your personal loan requests then it is time to take action. Take corrective measures to improve your financial profile and raise your credit score to make your application attractive to lending partners.

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