7 common reasons for personal loan rejection

7 common reasons for personal loan rejection

Personal loans are called unsecured loans because you do not need to provide collateral or security against the loan. For this reason, lenders go through every personal loan application with a fine-tooth comb. If even one factor does not meet their eligibility criteria, they reject the application. Banks wouldn’t want to risk their money unless they found everything 100% perfect.
So if your application was rejected, it’s most likely due to one of these seven common reasons:

1. Your credit score

Have you been paying your EMI and credit card bills on time? If there is any chance that you are late on your bill payment, your credit score may be bad. A low credit score does not look good on your financial profile. When your track record has negative ratings, banks know that there are chances that you will default in the future. Thus, banks get a serious reason to reject your loan application.
Your personal loan application can be rejected even if you do not have financial products such as a loan or credit card. This means you have a poor credit history, which makes lenders hesitant about sanctioning your loan.

2. High debts

Your debt-to-income ratio matters a lot to lenders. If you have too many loans and almost 40% to 50% of your income goes towards repayment, then banks may not be willing to offer you another loan. Too many loans will make them wonder whether or not you will be able to pay them back. At some point, your income will become insufficient and you will default. So it makes more sense to complete one or two loans before applying for a new loan.

3. Unstable employment

If you’ve been changing jobs every six months, then your loan application will most likely end up in the rejected pile. Lenders need to know that you have a stable job and a regular income that guarantees repayment of the loan. But if you’ve changed jobs often, they can’t trust your stability. Nowadays, most banks have criteria that you have to be in the same job for at least one year. Any person who does not meet this requirement receives a rejection letter on their loan application.

4. Your total income

If what you earn is not enough to pay the EMIs, then lenders may decide not to give you a personal loan. You should properly check their eligibility criteria and evaluate yourself before applying. Most banks have a minimum income requirement that you must meet. Your income cannot be less than or equal to your EMI.

5. Incorrect application details

Sometimes everything can be fine and your application can still be rejected. The reason could be as simple as incorrect information, a missing document or a discrepancy with the proof you provided. So make sure that while filling the application you don’t make any mistake. Double-check any information and any evidence you provide to the bank.
You should also check your credit report for errors. You may not be doing anything wrong, but sometimes incidents like identity theft or wrong entries can lower your credit score.

6. Too many rejections

Did you know that every loan application you make is recorded at the credit bureau? So every time your loan application is rejected, it shows up on your credit file and lowers your score. Applying too many times also affects your credit report badly.

7. Appropriate age and work experience

Many banks have strict rules regarding the age of the borrower and the number of years of work experience. Most often, you need to have a total work experience of at least two years before you can apply for a personal loan. Likewise, you must be 21 years of age to be eligible for a loan. The maximum age is the retirement age from work or 65 years.


There is no guarantee that your loan application will be approved. These above mistakes are the most common and you should do everything you can to avoid them. If you plan to apply for a personal loan, keep your credit history clean and provide accurate information. However, it depends on the eligibility criteria of the provider whether you will get the loan or not. All you can do is follow these simple mandatory rules.

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