Why Did My Personal Loan Application Get Rejected?
Discover the common reasons why personal loan applications get rejected, and learn how you can increase your chances of getting approved. Find out more here!
Money is crucial to solving life's problems and easing financial burdens. Personal loans offer a reliable solution when you need more funds than you have on hand. Whether planning a wedding, a family vacation, renovating your home, or dealing with an emergency, personal loans provide quick and accessible financial support. But, with so many loan options available, finding the right loan and successfully securing approval can be overwhelming.
Before applying for a loan, it is advisable to understand the common personal loan rejection reasons to avoid getting a loan rejection letter.
Why Do People Get Rejected For Personal Loans?
1. Low or No Credit Score
Your credit score is a numerical representation of your creditworthiness. Lenders assess this metric before approving any type of loan or credit. This score can range from 300 to 900, with 300 being the lowest and 900 the highest.
Most lenders require a credit score of 750 or higher to qualify for a Personal Loan. Some may accept lower scores but with the trade-off of higher interest rates, smaller loan amounts, and shorter tenures. Applicants with a history of defaulting on payments may face rejection.
A lack of credit history and score may also result in loan rejection, as the lender cannot evaluate the individual's financial behaviour.
2. Multiple Loan Enquiries
When seeking a Personal Loan, you may make multiple inquiries and applications with various lending institutions. However, it is advisable to avoid submitting numerous applications, as this can harm your credit score. Each application made will result in the lender checking your credit report and score.
Credit bureaus like CIBIL will record these inquiries and include them in your credit report. It could cause your profile to appear as credit-hungry, raising concerns about your financial credibility among lenders and potentially leading to the rejection of your Personal Loan application.
3. Too Many Existing Debts
Your Personal Loan rejection may also result from existing debts and financial obligations that consume a significant portion of your income. Before granting any loan request, lenders will thoroughly examine your ongoing loan repayments and credit card balances. Individuals struggling with debt and applying for a Personal Loan are at a higher risk of defaulting on repayments.
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If the lender believes you may be unable to repay the loan due to the number of outstanding debts, they may reject your loan request. It is, therefore, advisable to keep your existing debts minimal, leaving at least 50% of your monthly salary unencumbered.
To determine the maximum loan amount you may be eligible for, use our personal loan eligibility calculator, which considers factors such as your monthly income and current loan obligations. If you require a higher amount, consider adding a co-applicant with a strong credit score and stable income.
4. Unfulfilled Eligibility Criteria and Documentation
Each lender has minimum eligibility criteria you need to satisfy, including a minimum income requirement. Non-compliance towards these terms will lead to loan rejection.
However, simply meeting the eligibility standards does not guarantee the approval of your loan request. Providing incorrect information on the application form, not submitting required documents, or providing unverifiable documents can lead to Personal Loan application rejection.
5. Unstable Employment History
Your employment history plays a crucial role in the approval of your Personal Loan. If you have a history of frequent job changes or fail to demonstrate stability in your employment, the lender may reject your loan request. Most lenders often do not approve individuals who work for unlisted companies or receive a cash salary.
Lenders desire stability in employment history to minimise the risk of loan default. As a result, individuals with less than a year of work experience or who have been with their current employer for less than six months may not secure a Personal Loan.
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Frequently Asked Questions
Q1. What are the most common reasons for personal loan applications to get rejected?
Ans. Some of the most common reasons for personal loan application rejections are a low credit score, high debt-to-income ratio, unstable employment history, incorrect information in the application, unverifiable documents, and prior loan default history.
Q2. Can I reapply for a personal loan if my application was rejected?
Ans. Yes, you can reapply for a personal loan after addressing the reasons for rejection.
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