In 2025, Personal Loan demand in India continued to rise, yet a significant share of applications still faced rejection due to avoidable issues. Lenders today rely on deeper data points such as credit score patterns, repayment behaviour, and verified income details.
Understanding the key reasons for loan rejection is now essential, especially if you plan to apply in 2026.This guide explains why personal loan applications are declined, clarifies key loan eligibility details, and outlines practical steps to improve your loan approval chances.
7 Common Reasons for Loan Rejection by Lenders
While a low credit score is a well-known factor, lenders evaluate a comprehensive set of criteria. Here are the seven most common reasons for loan rejection:
1. Low CIBIL Score
A credit score below 700 is one of the primary triggers for rejection. Lenders see a low credit score as a sign of higher risk, often linked to delayed payments or excessive borrowing. Since your credit score reflects your overall credit history, even small lapses can impact approval.
2. High FOIR
Lenders calculate your Fixed Obligation to Income Ratio (FOIR). If your existing EMIs consume a large portion (typically more than 50%) of your monthly income, lenders worry about your repayment capacity and may reject the loan to avoid future defaults.
3. Unstable Employment History
Lenders prefer stable jobs and regular incomes. Frequent job changes or gaps in employment are major red flags. Most lenders prefer applicants who have been with their current employer for at least 6 months to a year.
4. Multiple Loan Inquiries
Applying for loans with multiple lenders in a short span creates 'hard inquiries' on your credit report. These behaviours reduce your credit score temporarily and suggest financial stress, which can negatively affect loan approval.
5. Incomplete or Incorrect Documentation
Errors in KYC documents or mismatches in personal details often lead to immediate rejection. Lenders cross-check information using PAN, Aadhaar, and bank statements, so even small inconsistencies can affect eligibility criteria.
6. Insufficient Income
Every lender sets a minimum income benchmark to ensure borrowers can comfortably manage their monthly EMIs. If your monthly income falls below this threshold, the lender may view the loan as unaffordable. For instance, if a lender requires a minimum monthly income of ₹25,000 and your earnings are ₹20,000, your application may not meet the eligibility criteria.
7. Past Defaults or Loan Settlements
A history of missed EMIs, delayed repayments, loan defaults, or past loan settlements can significantly affect lender confidence. Even older repayment issues can impact your credit score and reduce personal loan eligibility, as lenders prefer borrowers with a clean repayment track record.
Also Read: What is FOIR in Personal Loan
How to Avoid Personal Loan Rejection?
The good news is that most reasons for loan rejection can be addressed with better financial planning and timely corrections. Instead of applying blindly, it is better to align your profile with lender expectations. The following tips for loan approval focus on strengthening areas lenders value most:
1. Repay Credit Card Dues and EMIs on Time
Before applying for a personal loan, make sure all your existing credit card bills and loan EMIs are paid on time. A consistent repayment history signals financial discipline and directly supports a healthy credit score. Since lenders rely heavily on credit reports while evaluating applications, even a single missed EMI can lower approval chances.
2. Declare All Sources of Income
Along with your primary salary or business income, disclose additional earnings such as rental income, interest from investments, or freelance work. These income streams strengthen your repayment capacity and can enhance your eligibility. Make sure to submit supporting documents such as bank statements or income tax returns if required.
3. Keep Your FOIR Within Limits
A lower FOIR indicates sufficient disposable income and better repayment ability. Keeping your FOIR at around 40% or lower is generally considered favourable. Tracking monthly expenses and avoiding unnecessary financial commitments can help maintain a healthy ratio.
4. Opt for a Longer Loan Tenure
Choosing a longer repayment tenure can reduce your monthly EMI burden, which makes repayments more manageable. Lower EMIs reduce the risk of missed payments, which reassures lenders about your ability to service the loan consistently.
5. Avoid Multiple Loan Applications at the Same Time
Submitting several loan applications simultaneously harms your credit score. Each application triggers a credit enquiry. Focus on lenders whose eligibility criteria match your financial situation to improve loan approval prospects.
How to Reapply for a Personal Loan?
If your application was declined, take time to correct the underlying reasons for loan rejection. Waiting 3 to 6 months allows time to improve your credit score and overall profile. After this waiting period is over, you can follow these quick steps to reapply:
Step 1: Start Your Application Online
Begin by clicking on the ‘Apply Now’ button available on the lender’s website.
Step 2: Complete the Loan Application Form
Carefully fill in the required personal, professional, and financial details in the application form.
Step 3: Upload the Required Documents
Upload the necessary documents such as identity proof, address proof, and income-related records as specified.
Once the details and documents are successfully verified, the loan amount is approved and credited directly to your bank account.
To Conclude
Personal loan rejection is often a result of preparation gaps rather than outright ineligibility. By understanding lender expectations and addressing common reasons for loan rejection, borrowers can significantly improve approval chances in 2026. If you are planning to apply, choose a lender that offers transparent processes and flexible assessment criteria. Exploring a Personal Loan with Poonawalla Fincorp can be a practical step, especially if you value clarity, digital convenience, and a borrower-focused approach.
FAQs
Can my Personal Loan be rejected even if my CIBIL score is more than 750?
Yes. While a high CIBIL score helps, factors like income stability, existing EMIs, and employment history are also key reasons for loan rejection.
How long should I wait before I reapply for a Personal Loan?
It is advisable to wait for a minimum of 3 months to 6 months before reapplying. This period gives you time to improve your credit score and prevents further damage from multiple inquiries.
Does applying to multiple lenders at the same time increase the chances of rejection?
Yes. Multiple enquiries in a short span can lower your credit score temporarily and raise risk concerns.
Will my Personal Loan settlement impact my new loan application?
Yes. A settled status remains on your credit report for up to 7 years and indicates that you did not repay the full amount. Most lenders view this as high risk and may reject new unsecured loan applications.
Will my employment history impact loan approval?
Yes. Lenders prefer stability. Frequent job hopping can lead to rejection. Typically, lenders look for at least 6 months to 3 years of total work experience.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply