Personal Loan applications go through several eligibility and credit checks before approval. While a rejection can be frustrating, understanding the loan rejection reasons can help you improve your credit profile and rectify mistakes in the documentation or application process. This article highlights the top 9 reasons for rejection of your Personal Loan application. Read on till the end to find out how you can strengthen your chances of getting approved quickly in the future.
Understanding Personal Loan Rejections
Understanding the rejection of Personal Loan applications is important before applying again. Lenders check many factors to decide whether to approve a loan. These include your income, credit score, job stability, existing loans, and repayment history. If any of these do not meet the lender’s rules, your application may be declined.
A rejection does not always mean you become permanently ineligible. It simply means the lender feels there is a higher risk at the moment. By knowing what lenders look for and the common loan rejection reasons, you can fix the weak areas in your profile. This will help you apply with more confidence and improve your chances of a Personal Loan approval next time.
Also Read: How To Get A Rs.1 Lakh Personal Loan in India?
9 Possible Reasons for Personal Loan Rejection
When you apply for a Personal Loan, approval depends on several factors that can influence the lender’s decision. To qualify, you must meet the Personal Loan eligibility criteria, submit the required documents, and show good creditworthiness.
If your loan application faces rejection, it may be due to one or more of the loan rejection reasons explained below:
1. Not Meeting the Income Criteria
Before approving a Personal Loan, lenders check your income stability. This helps them ensure that you can repay the loan on time. Most banks or Non-Banking Financial Companies (NBFCs) set minimum income requirements as part of Personal Loan eligibility for both salaried and self-employed applicants. If you are unable to show a stable income, your loan application may be rejected.
What Can Be Done?
Always check the lender’s income requirements before applying. You can also use a loan eligibility calculator to find loan options that match your income level.
2. Not Meeting the Basic Application Requirements
Failing to meet basic application requirements is a common reason for Personal Loan rejection. Each lender has their own Personal Loan eligibility rules related to age, employment type, and work experience.
What Can Be Done?
Read the bank or NBFC’s terms and conditions carefully. Make sure you meet all eligibility and application requirements before applying, as these can differ from one lender to another.
3. Multiple Loan Inquiries and Applications
Every Personal Loan application leads to a credit check by bureaus such as CIBIL or Experian. Applying for multiple loans within a short time results in several hard inquiries, which can lower your credit score and lead to rejection of Personal Loan.
What Can Be Done?
Avoid applying to multiple lenders at the same time. Compare lenders in advance and apply only after selecting the most suitable option.
4. Low Credit Score
A credit score ranges from 300 to 900 and reflects your credit behaviour. Lenders use it to assess risk. If your score is below the lender’s required limit, your application may be rejected. Applicants with no credit history may also face rejection of Personal Loan.
What Can Be Done?
A score above 700 is generally considered good for personal loans. If you do not have a credit history, speak with lenders to explore alternative options.
5. High Existing Debt
Having too many ongoing loans or credit card dues can signal repayment risk to lenders. This is one of the major loan rejection reasons. If your existing debt is high, your Personal Loan application may be rejected unless it is meant for debt consolidation.
What Can Be Done?
Borrow only what you can repay comfortably. Maintain timely repayments and avoid taking multiple unsecured loans at the same time.
6. Unstable Employment History
Your job profile and work stability matter to lenders while evaluating Personal Loan eligibility. Frequent job changes or unregistered employers suggest unstable or hard-to-verify income, which makes lenders see higher repayment risk.
What Can Be Done?
Most lenders prefer applicants with at least two years of total work experience and one year with the current employer. Self-employed individuals should have a business history of three to five years, though requirements may vary.
7. Incorrect or Missing Documents
Incorrect information, missing documents, or form errors make it hard for lenders to verify your identity and income. These make it hard for lenders to verify your identity and income, increasing the risk of rejection of Personal Loan.
What Can Be Done?
Check all documents carefully before submission. Ensure that the details in your application form match your documents and are accurate.
8. High Debt-to-Income Ratio
The debt-to-income ratio compares your monthly income with your existing loan payments. A high ratio shows limited repayment capacity and is a frequent loan rejection reason.
What Can Be Done?
Reduce existing debts and control expenses. Regularly track your debt-to-income ratio to keep it within acceptable limits.
9. Borrowing More Than Your Repayment Capacity
Lenders decide the maximum loan amount based on your income and existing liabilities under Personal Loan eligibility guidelines. Applying for an amount higher than what you can repay may result in rejection.
What Can Be Done?
Apply only for the amount you truly need and can repay comfortably. Choose a Personal Loan with suitable terms and flexible repayment options.
Also Read: Personal Loan Eligibility Calculator 2025: Check in 2 Minutes
6 Ways to Improve Your Chances of Personal Loan Approval
Here are six simple ways to reduce loan rejection reasons and improve approval chances:
1. Maintain a Good Credit Score: A credit score of 700 or above reflects good credit behaviour and assures lenders of your ability to repay the loan.
2. Keep a Low Debt-to-Income Ratio: A low ratio shows strong repayment capacity and reduces rejection of personal loan risk.
3. Do Your Research: Compare the terms and conditions of different lenders and choose the one that best matches your financial requirements.
4. Fulfill the Loan Eligibility Criteria: Check and meet the lender’s eligibility and basic application requirements before applying.
5. Check Your Loan EMIs: Use a Personal Loan EMI calculator to estimate your monthly installments and plan your repayments in advance.
6. Avoid Multiple Loan Applications: Applying to many lenders at the same time can lower your credit score and increase the chances of rejection.
Also Read: What is the Minimum CIBIL Score Required to Get A Personal Loan?
To Conclude
A Personal Loan can help you meet various financial needs, but it is important to avoid common loan rejection reasons. Understanding these factors can help improve your chances of approval. Applying with accurate details, stable income, and proper documents also makes the process faster and smoother.
If you are looking for a Personal Loan, consider Poonawalla Fincorp. We offer competitive interest rates, flexible repayment tenures, and a simple online application process.
FAQs
How can I improve my credit score to get a Personal loan?
You can improve your credit score by paying off existing debts on time, avoiding multiple loan applications, and having a healthy credit mix of unsecured and secured loans.
How long should I wait before reapplying after rejection?
Wait at least three months and improve the factor that caused rejection before reapplying.
Can self-employed individuals apply for a Personal Loan?
Yes. A stable income and a sufficient business vintage are required.
Is employment stability important for approval?
Yes. Stable employment improves lender confidence and approval chances.
Can I get a Personal Loan if I already have another loan?
Yes, provided your income supports additional EMIs and your debt-to-income ratio remains within limits.
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