Personal Loan Rejection

Top 6 Reasons for rejection of your Personal Loan

Table of Content

April 29, 2022 • 1898 views
Author: PoonawallaFincorp Category: Personal Loan

Applying for a Personal Loan without due deliberation can lead to its rejection. The next time you try to qualify for a loan, bear in mind the reasons for which the loan may get rejected. Here are the most common personal loan rejection reasons.

Not Meeting Income Criteria

Before granting a Personal Loan, lenders want to ensure timely repayment and no default on the loan from the applicant. This is ensured by checking the income stability of the borrower. Adequate and stable income shows that you will be able to repay all your EMIs on time. This is the reason why it is easier for the salaried employees to get a personal loan as compared to the self-employed, as the salaried employees have a fixed income amount and sources. Generally, most lenders have defined a minimum income requirement for the salaried and self-employed.

What can be done?

To avoid this situation, you should consult your lender before filling out the application form. Once you understand general personal loan rejection reasons, you would be in a position to avoid those paths.  Additionally, you can look for NBFCs (Non-Banking Financial Companies) where your annual income is not the most important consideration. However, it is always better to calculate your loan eligibility amount as per your income to avoid rejection. You can use Poonawalla Fincorp Personal Loan Eligibility Calculator to know the best offers on personal loans as per your income. 

Multiple Loan Inquiries and Applications

When you inquire online about personal loans from different lenders, you can often apply for personal loans at multiple lenders. However, every time you apply for a personal loan, the lender checks your credit report and credit score with the credit bureaus. Credit bureaus treat these as hard inquiries and mention them on your credit report which negatively impacts your credit score.

What can be done?

For this reason, the option to avoid rejection of a personal loan is to apply through an online lender like Poonawalla Fincorp. 

Low Credit Score

A credit score is a number between 300 and 900, which basically reflects your creditworthiness. It plays an important role in the lender's decision to grant the loan. Generally, lenders have a threshold credit score for approving personal loans. If your credit score is below the limit, your loan application will be rejected. Applicants without a credit score may also face rejection as there is no credit history. 

What can be done?

Generally, a credit score of 750 and above is considered ideal for loan approval. Alternatively, you can approach NBFCs for personal loans as they have lower credit score requirements than banks. However, NBFCs also charge higher interest rates on personal loans than banks.

If you do not have any credit history, avoid approaching a lender with whom you do not have any history (such as no savings/salary account or deposits) as they may reject your loan application. In such a case, approach the lender with which you have a salary account or existing relationship. Another great option that you can try is to apply for a secured personal loan such as a loan against a fixed deposit.

Also Read :- What is the Maximum Personal Loan Amount One Can Borrow?

High Current Debt

One of the Personal Loan rejection reasons is when your existing loans are at a high level. If you currently have a lot of open credit accounts, such as credit cards and loans, your potential lender where you are applying for a personal loan will consider that you have a high credit burden and end up in default. Your high debt may put you at risk in the eyes of the lender, which may result in the rejection of your loan.

Sometimes, borrowers deliberately reduce their existing loan repayments in the hope of getting a higher loan amount. However, this can easily go wrong as lenders will refer to your credit report including all your current debt obligations before approving the loan amount. Hence, this type of misinformation can also lead to the rejection of your loan application.

What can be done?

Make sure you only borrow loans and credit cards as per your repayment capacity, as and when required. Avoid taking out more than one loan if you cannot pay them off fairly. Also, even if you have taken multiple loans, keep a clean repayment record and ensure that the ratio of secured and unsecured loans is balanced. The number of unsecured loans should be less compared to secured loans. 

Unstable Employment History

Your profession and employment history play an important role in personal loan approval. Lenders prefer to give loans to people working in reputed organizations. So, if the company you are working for is unregistered or not listed, your application may get rejected. Also, most lenders offer personal loans to people who have a stable history of employment. Most lenders want an applicant with stable employment or business and regular income. People who change jobs frequently are considered less qualified to get loan approval by the lenders or the personal loan interest rates offered for those individuals are higher.

What can be done?

Maintain a good employment record to ensure that your application for a Personal Loan is approved. In general, Personal Loan lenders expect you to have at least three years of work experience, with at least one year of experience in an existing organization. In the case of self-employment, your business should be in existence for at least three to five years. However, it may differ across lenders. 

Incorrect/ Missing Documents

Your loan application is approved only after the verification of your documents. If any document is missing or there is information inconsistency in your documents, your lender might reject your loan application. Your loan application form is as important as the other documents that you submit along with it. The details given in your loan application like your name, age, income, and address are important for the lenders to generate the necessary information about you. If the lenders find an inaccuracy in any of these details mentioned in your loan application, your loan request will be rejected.

What can be done?

Check the list of required documents beforehand. If you are applying for a Personal Loan online, carry the scanned copies of all the documents, and if you are applying offline, carry the original along with the required copies. When it comes to your application form, fill in the details carefully and avoid overwriting. Provide the necessary information precisely without spelling mistakes. Fill in your name and address details as mentioned in your KYC documents. Also, double-check the information you have provided before submitting your loan application.


While a personal loan keeps you ready to face any financial crunch. If your loan application is rejected once, it gets recorded in your credit report, leaving you unable to borrow money easily. It is advisable to learn about Personal Loan rejection reasons.  Keep the above points in mind to avoid loan rejection. If you feel that you are lacking in any parameter, it is better to make corrections and then apply.

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