Reasons For Rejection of a Personal Loan
July 21, 2023

In situations of unexpected financial emergencies, depending solely on your savings might not always be enough, thus leading you to consider a Personal Loan as a means to overcome the circumstances. In this scenario, the last thing you want to experience is having your loan application rejected. So, ensure your loan application is not rejected for the following reasons.

Low Credit Score

The applicant’s ability to manage credit efficiently is the primary requirement for acquiring credit: A significant factor that could result in the rejection of a Personal Loan is having a low credit score. There are several factors that contribute to a low credit score, including delayed repayment of existing debts and neglecting mandatory dues. No lender will entertain requests from Customers who have overdue loans or settlements.

How To Fix It?

Building a strong credit history can help in improving a low or poor credit score. An individual must have a credit score of at least 750 to qualify for any type of loan. Also, by consistently paying credit card dues on time and ensuring timely repayment of existing loans, individuals can improve their credit scores.

Low Income

The lender’s primary concern when approving a Personal Loan is to confirm that the borrower can repay the loan. As part of the eligibility assessment, the applicant’s income is thoroughly reviewed. Having a stable income indicates your ability to make timely EMI repayments.

This is why obtaining a Personal Loan is typically easier for salaried employees compared to self-employed individuals, as salaried employees have a stable income with fixed amounts and sources. Lenders usually have minimum income criteria for both salaried and self-employed individuals, and if you apply for a personal loan amount that exceeds your eligibility, your loan application is likely to be rejected.

How To Fix It?

If you feel that your application might be rejected based on this criterion, it is advised to have a conversation with the lender before proceeding with the application. However, before initiating the loan application process, it is better to thoroughly check the eligibility criteria to ensure they are eligible, thereby minimizing the risk of rejection. Thus, once the individual fulfills the minimum criteria, they should initiate the loan application process.

Inaccurate Information

If any inaccurate information is found in the individual’s application, it will result in the loan approval being declined. For instance, inaccurate details such as your name, residence, phone number, and other account information make it challenging to gather the necessary information about you. Thus, inaccurate information leads to loan rejection.

How to Fix It?

Prior to applying for the loan, the applicant should conduct a comprehensive review and ensure that the required information is accurate and in accordance with the lender’s requirements. It’s important to note that each lender may have different information requirements for loan approval.

Existing Loans

If you already have a significant amount of debt, the online approval process for your Personal Loan might be rejected. This is because the existence of multiple loans might lead the prospective lender to believe that you are carrying a significant credit burden. Consequently, you will appear to be a risky candidate, potentially leading to the rejection of your loan application. Therefore, it is crucial to only borrow within your repayment capacity and avoid going overboard.

How To Fix It?

By consolidating existing loans into a single loan, the applicant can pay them off more effectively. The lower interest rates associated with this option can be advantageous. However, the lender must approve the pending multiple loans. Therefore, the applicant should check their eligibility before applying for the loan.

Unstable Income

When it comes to granting loans, financial stability is of utmost importance. Lenders need to verify that you possess a reliable source of income, that would enable you to make timely loan repayments. Therefore, job instability can pose a significant challenge during the loan approval process. So people who switch jobs too frequently may face issues with loan approval.

How To Fix It?

Before initiating the loan application, the applicant should ensure they provide the lender with income certificates and bank documents that verify the stability and continuity of their income based on their financial track record. For instance, if you have other sources of income like rental income or interest payout you can give the proof to lenders ensuring that it will help you to make EMI payments regularly.

Multiple Applications

While you have the option to Apply For a Personal Loan from multiple lenders, there is a catch. Each lender will assess your credit report before approving your loan. When the Credit Bureau report reveals multiple loan applications to different lenders, it can give the impression of financial strain, raise doubts about your financial credibility, and possibly result in the rejection of your application. Hence, it is wise to apply and inquire for a Personal Loan from only one lender at a time.

How To Fix It?

In case of an urgent requirement, it is advisable for individuals not to apply with multiple vendors. Instead, they should carefully review the requirements of a single lender and make an effort to meet those criteria. This approach helps portray the individual as creditworthy rather than appearing excessively eager for credit.

Age Limit and Default Rate in Places

To be eligible for a loan, the applicant must meet the specific age requirement and be of legal age. Failure to meet the age requirements, either by being below the minimum age of 23 years or exceeding the maximum age limit, can lead to the rejection of the loan application. Typically, the maximum age limit is set around 60 since individuals tend to have lower risk-taking capacities beyond this age. Additionally, in certain areas, higher default rates can result in the rejection of loan applications for individuals.

How To Fix It?

Before applying for a loan, it is advisable for the person to verify the age limit. Additionally, if the individual is applying from an area with high default rates, providing additional evidence of income stability and other necessary information is recommended.

Physical Verification Decline

After receiving the documents, the lender takes a few days to analyze them before forwarding them to the verification department. Typically, lenders maintain their own verification team, which includes representatives. One of these team members is sent to the borrower’s residence to personally verify the provided address. Additionally, they conduct a visit to the borrower’s workplace to verify their employment status with the organization.

For instance, the documents you submit for KYC (Know Your Customer) serve the purpose of establishing your Residential Stability, providing the bank with evidence of your permanent address that confirms your residency in the city. In the case of renting, banks might require additional information. And if during the visit to your provided address, the representative is unable to verify your residential stability, your loan application may be rejected.

The verification of other essential documents such as PAN Card, Aadhaar, or Passport is carried out online through different portals.

How To Fix It?

At this stage, once the Personal Loan is declined due to a verification issue the lender will clearly communicate the reason for disapproval. So now if the verification is declined due to your residential address where your residing was not confirmed, you can connect with your neighbors to ensure that the next time when a lender’s representative visits the place they can confirm that you reside at this place.

Documents Incomplete

After the thorough verification of documents, the Personal Loan Application is approved. Failure to submit the appropriate documents that validate your Eligibility For a Personal Loan can result in rejection. It is therefore important to thoroughly review the loan application guidelines and ensure that you submit the correct documents accordingly.

How to Fix It?

Follow the prescribed list of documents that you must submit and maintain a handy checklist to ensure that none are overlooked. This will help you to process the loan application smoothly.

Invalid Reason

It may come as a lesser-known fact that individuals typically Apply For Personal Loans to finance various expenses such as weddings, vacations, home renovations, or purchasing new gadgets. However, if you are seeking a Personal Loan with the intention of using the funds to establish a business, it may contradict the concept of income security. It is essential to bear in mind that lenders grant loans based on your current salary rather than the projected growth of your business. Well, there are numerous such scenarios where a Personal Loan is declined like if you are willing to take the loan for investment and so on.

Company Not Listed

The employment history and occupation of the applicant significantly influence the Approval of Personal Loans. Lenders prefer granting loans to individuals employed in recognized and stable organizations. Therefore, if your company is not listed or registered, there is a possibility of your loan application being rejected.

How to Fix It?

Apply to lenders who give loans to non-listed companies or if the lender is willing to list the company.

Default in The Family

As you may be aware, banks, non-banking financial institutions, and credit information companies collect and consolidate your payment and credit-related information. This information includes personal details like your name, age, address, current employment, and other identifying information. If any of these details match those of a credit/loan defaulter, there is a possibility that your loan application could be rejected, even if you have a good CIBIL Score.

For instance, if any of your family members have defaulted on a loan previously and you share the same address, in such a situation your home address can become an obstacle as it is associated with a defaulter. In such cases, when the lender identifies a red flag like this, they may choose to reject the loan application to prevent approving a fraudulent loan request

How to Fix It?

If you can pay the balance of the previous loan and remove the flag of defaulter then the lenders can consider your loan application.


While a Personal Loan can provide financial security in times of need, being able to secure the loan is equally important. A rejected Personal Loan Application is documented in your credit report, making it harder to borrow funds in the future. Thus it’s essential to keep the mentioned factors in mind and apply only when you are confident about the approval of your loan application. If you identify any gaps in meeting the necessary requirements, it’s best to work on enhancing them before applying.

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