Common Reasons for Personal Loan Rejections

Whenever we encounter a sudden requirement for money, savings are not always the best option or sufficient to help. In these situations, a personal loan comes as a rescue. However, during this time, the last thing you would want is rejection of your loan application. There are various reasons why someone’s loan application can get rejected. We will explore all those rejection reasons in this article.

Personal Loan Rejection Reasons:

1. Low Credit Score:

A credit score is a number that lies in the range of 300 to 900 that exemplifies your creditworthiness. For a personal loan, there is always a certain threshold set by a lender for the loan. The application of a personal loan is only accepted if your credit score is as per the requirements. In case you don’t have any credit history, then your application might also get rejected. A credit score of nearly 750 is considered good. You can maintain it by paying your bills and loan installments on time.

2. Multiple Loan Applications:

You can apply for a personal loan from multiple lenders, but there is a catch. The bank will inquire about your credit report before sanctioning a loan to you. If the report shows that you have applied to multiple lenders, it reflects your desperation or stress for the loan and questions your financial credibility. It can also lead to the rejection of your application. Thus, it is always recommended to apply for and enquire about a personal loan only from one lender at a time.

3. Existing Debts:

If you have already taken multiple loans, especially of a high amount, then online straight-through approval of your personal loan might get stalled. If there are existing open credit accounts, such as loans or credit card bills, then the prospective lender will think you are burdened with credit. So, it will seem like you are a risky proposition. It will become a basis for the rejection of your loan. Thus, it is better to clear your existing loans as per your repayment capacity and never go overboard.

4. Insufficient Income:

The lender has to be assured of repayment before the disbursement of a personal loan. In this case, the income of the applicant becomes part of the eligibility for a personal loan. A stable income of an individual reflects the capacity of EMI repayment. Thus, if there is a chance that your application might get rejected on this ground, talk to the lender before you fill out the application. 

5. No or Fluctuating Employment History:

The employment history of the applicant and occupation play a major role in the personal loans. Lenders prefer to sanction loans to applicants who have a good employment history with a stable track record. The organisation must be listed and registered. Moreover, most banks provide personal loans to individuals with stable employment. Also, a work experience of at least three years would be good in this regard.

6. Improper Documents:

A personal loan application is approved after verification of documents. If there is any inconsistent or missing information in these documents, then there is a high chance of the loan rejection. Thus, you must provide consistent and complete information in the application documents.