Common Reasons for Personal Loan Rejection

Personal loans can be beneficial in times of immediate financial need. Due to digital banking, applying for a personal loan has become easy and fast. Although people now have easy access to loans, not everyone gets approved for one. Knowing why your loan application is rejected can help you the next time you apply. So, if you’re wondering about common reasons for personal loan rejection, read this blog to know more!

If your loan application is getting rejected again and again, there is a high chance that it might be due to the following reasons:

• Bad or Low Credit Score

Your credit score is a crucial factor in determining your eligibility for a personal loan. A low or bad credit score indicates a history of missed payments or other financial mismanagement. Lenders are more likely to approve loans to individuals with a good or excellent credit score.

▶️Worried about your low CIBIL Score? Read our blog to learn how to increase your CIBIL Score.

• Incomplete or Missing Information

Submitting all the required documents in a timely manner is essential. Incomplete or missing information and documents can delay the approval process and may result in rejection.

• Discrepancy in the loan application and documents

It is essential to provide accurate information during the personal loan application that matches the supporting documents. Any mismatch or discrepancy in the data provided can lead to the rejection of your application.

• Bad Repayment Behaviour or Missed EMIs

It is necessary to pay your loan EMIs on time to maintain a good credit history and be eligible for several loan offers. A history of late payments or missed EMIs on previous loans can negatively impact your credit score and significantly reduce your chances of getting approved for a personal loan.

• Mismatch in the Applicant’s Signature

Banks and NBFCs often verify your signature to prevent any fraudulent activity. A mismatch between the signature on your loan application and other documents can raise concerns and lead to rejection.

• Non-verification of address

Lenders may verify your current address to ensure you are a legitimate resident and to reduce the risk of fraud. If your address cannot be verified, your loan application may be rejected.

• Non-verification of income

One of the primary factors lenders consider is your ability to repay the loan. This is determined by your income. If you fail to provide adequate or verifiable proof of income, such as salary slips, bank statements, Form 16, and other relevant documents, your application will likely be rejected.

• High debt-to-income ratio

Lenders assess your debt-to-income ratio to determine your ability to repay the loan. A high debt-to-income ratio means you have a significant amount of existing debt compared to your income. This can lead to rejection of your loan application.

• High Number of Existing Debts

Your loan application might also be denied if you have too many existing debts and they consume most of your income. It is advised only to take loans when necessary and to make sure you pay your instalments on time because banks can access your financial profile and credit situation even if you have taken out loans from third-party banks. Your eligibility for obtaining a personal loan decreases if you have numerous active debts.

• Not Meeting the Minimum Income Criteria

Lenders often have minimum income requirements to ensure borrowers can repay the monthly EMI. If your income falls below the minimum income criteria set by the lender, your application may be rejected.

▶️ You might also want to read -

• What is Credit Rating?

• Debt Trap - Causes and How to Get Out of it?

• Maximum and Minimum Tenure for Personal Loan

• To combat low income and improve your eligibility, demonstrate your additional income sources, such as variable pay, quarterly incentives, and income from other sources.

• Before applying for a Personal Loan, pay off all your current debts and credit card bills on time. Doing so will help raise your credit score.
• Together with another family member, ideally one with a higher income and CIBIL score, apply for the loan.
• Don't submit multiple loan applications simultaneously because it might lead to rejection of your application.
• Select a lender that meets your needs and has specific eligibility requirements.

It's simple to apply for a Personal Loan. You only need to enter your basic information once and submit it online for instant or same-day approval. This quick application process does not, however, ensure acceptance. Ensure you accurately fill out the details because your lender will confirm them before approving your application.

We hope that this blog will assist you in better understanding the typical justifications for Personal Loan application denials, as being aware of the mistakes that can cause your application to be rejected will help you avoid making those mistakes.