Tuesday, May 30, 2023

7 Common Reasons for Personal Loan Rejection

Personal loans are called unsecured loans because you are not required to provide any collateral or security against the loan. For this reason, lenders approach each individual loan application with great care. If even a single factor does not match their eligibility criteria, then they reject the application. Banks will not want to risk their money unless they are 100% sure everything is correct.

So if your application was refused, it is probably because of one of these seven common reasons:

1. Your Credit Score

Are you paying your EMIs and credit card bills on time? If there is a possibility that you have defaulted on your paid bill payments, then your credit score may take a beating. A low credit score does not look good on your financial profile. When you have negative marking in your track record, banks know that you are likely to default in future as well. Thus, banks get a strong reason to reject your loan application.

Your personal loan application may get rejected even if you do not have any financial product like loan or credit card. This means that you have a thin credit history which makes lenders hesitant to approve your loan.

2. High Debt

Your debt to income ratio matters a lot to lenders. If you have a lot of loans running and around 40% to 50% of your income goes in repayment, banks may not like to give you another loan. Too many loans will make them wonder whether or not you’ll be able to pay them back. At some point, your income will become insufficient and you will default. Therefore, it is prudent to clear one or two loans before applying for another.

3. Unstable Employment

If you have been changing your job every six months, then there are high chances of your loan application getting rejected. Lenders need to know that you have a stable job and a regular income that guarantees repayment of the loan. But if you’ve been changing jobs frequently, they can’t count on your stability. Nowadays, most of the banks have norms where you need to be in the same job for at least one year. Anyone who does not meet this requirement receives a rejection letter for his loan application.

4. Your total income

Lenders may decide against giving you a personal loan if what you earn is not enough to pay the EMIs. Before applying you need to check their eligibility criteria properly and evaluate yourself. Most banks have a minimum income requirement that you have to meet. Your income cannot be less than or equal to your EMI.

5. Incorrect details in the application

Sometimes everything may be fine, and yet your application may be rejected. The reason could be as simple as incorrect information, missing documents or a discrepancy with the proof you submitted. So make sure that you do not commit any mistake while filling the application. Double-check every information and all proofs submitted to the bank.

You should also check your credit report for errors. You might not be doing anything wrong, but sometimes incidents like identity theft or false entries can bring your credit score down.

6. Too many rejections

Do you know that every loan application made by you is recorded with the credit bureaus? So every time your loan application is rejected, it reflects in your credit record and brings down the score. Applying too many times also affects your credit report.

7. Correct age and work experience

Many banks have strict rules regarding the age of the loan applicant and the number of years of employment. Mostly you need to have a total work experience of at least two years before applying for a personal loan. Similarly, you must be at least 21 years of age to be eligible for the loan. The maximum age is the age of retirement from work or 65 years.


There is no guarantee that your loan application will be approved. These mistakes above are the most common, and you need to do everything possible to avoid them. If you are planning to apply for a personal loan, keep your credit history clean and provide correct information. However, it depends on the eligibility criteria of the seller whether you get the loan or not. All you can do is follow these simple must-dos.

Related Articles


Please enter your comment!
Please enter your name here

Stay Connected


Latest Articles