What is the Reason for Personal Loan Rejection?

Last year my personal loan request was rejected. It was quite disappointing, and I realised that out of several personal loan rejection reasons, my low income was the main reason behind the rejection.

What are the Personal Loan Rejection Reasons?

My banker friend told me about the 4 personal loan denial reasons. Let me share them with you guys;

• Low income:

This is the most common reason a lender will deny application for a personal loan. Your loan request can be denied by the lender if your income falls below the minimum income threshold that has been established. For example, the majority of lenders demand that your net monthly income be greater than Rs. 25,000. Lenders can decline to approve a loan if the monthly income is less than Rs. 25,000.

• Low CIBIL Score:

Lenders require your CIBIL, or credit score, regardless of the loan that you apply for. A score of 750+ out of a possible 900 points is considered excellent, while typically you need a score of 650+ to be considered for a loan. You risk not being approved for the loan if your CIBIL score is low.

• Job instability:

Those who frequently change jobs or those who experience prolonged unemployment might find it difficult to get loans. However, your chances of having the loan approved can rise significantly if you have worked for the company for more than a year and a half.

• A high debt-to-income ratio:

This is another cause of applicants' personal loan applications being denied. If, for example, your monthly income is Rs. 25,000 and your EMIs are Rs. 15,000, you may not have enough money left over each month to cover your other expenses. Lenders take this as a warning sign because it casts doubt on your ability to make future loan EMI payments. 

My friend suggested me to combat personal loan rejection, I need to improve my eligibility, by including evidence of my additional sources of income, such as variable pay, quarterly incentives, income from other sources, etc. in my income proof.

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Personal loan rejection can be disappointing, especially when you’re in need of funds. Understanding the reason for personal loan rejection can help you address issues and improve your chances in future applications.

Why Did My Personal Loan Get Rejected?

Here are common reasons why personal loans get rejected:

• Lenders rely heavily on credit scores to assess your creditworthiness. A low credit score, often below 650, indicates a history of missed payments, high credit utilization, or defaults, leading to rejection.

• The debt-to-income (DTI) ratio measures your monthly debt payments against your monthly income. A high DTI ratio suggests you might struggle to repay new debt, making lenders wary of approving your loan.

• Lenders set minimum income criteria to ensure you have the means to repay the loan. If your income is below this threshold, your application may be denied.

• Lenders prefer borrowers with stable employment. Frequent job changes or a history of unemployment can signal financial instability, leading to rejection.

• If you already have significant outstanding debt, lenders may be hesitant to extend additional credit, fearing you might not manage more debt responsibly.

• Errors or missing information on your loan application can lead to automatic rejection. Ensure all details are accurate and complete before submitting.

• Applicants must typically meet certain age and residency criteria. Being too young, too old, or not having a stable residential history can result in rejection.

• Some lenders have preferences for salaried employees over self-employed individuals due to perceived stability. If you're self-employed or have a less conventional job, your application might face stricter scrutiny.

• A history of bankruptcy or ongoing legal issues related to finances can severely impact your chances of loan approval.

• Frequent overdrafts, bounced checks, or negative balances in your bank account can indicate poor financial management, leading to loan rejection.

These are a few common reasons why personal loan rejected.

To improve your chances of getting a personal loan, maintain a good credit score, keep your debt-to-income ratio low, ensure a stable employment history, and provide accurate information in your application.

By understanding and addressing these factors, you can enhance your eligibility for future loan applications. This is all about the reason for personal loan rejection.

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Hi there, I applied for a personal loan from Kotak Bank, which was rejected. So, I began researching why my personal loan rejected. I found out multiple reasons like the presence of incorrect documents, multiple loan applications, etc.

Why Personal Loan Rejected?

Here are the reasons behind the rejection of personal loan applications.

• When you have applied for a loan from multiple lenders

Although it is valid to apply for a loan through several lenders, the banks run an inquiry about your credit report before sanctioning the loan. 

When the report shows multiple applications, it makes you as the borrower a distressed applicant. This thus raises a question about your income stability and increases your chances of rejection.  

• When you have missing or mistakes in documents

The loan documents are amongst the most important when it comes to approving a personal loan. If you have missing documents or there are mistakes in the information in your documents, the bank will immediately reject the application. 

Even with the loan application form, if the bank finds incorrect information, they’ll not trust you, and the loan will be rejected.

All the other reasons behind why personal loan gets rejected have been shared by Anshu in her answer. You can refer to that. I hope this helps!