Applying for a personal loan is quite common these days. Whether you want to cover wedding expenses, medical bills, education costs, or even a much-needed vacation, personal loans come to the rescue. But what if your loan application gets rejected? That too after waiting for days or weeks? It’s frustrating, right?
Don’t worry. You are not alone. Loan rejection is more common than you think. In this blog, let’s talk about the common reasons for loan rejection and how you can avoid them. We will also share tips to get easy approval loans and understand the personal loan process better. Let’s dive in.
1. Poor Credit Score
Your credit score plays a huge role in whether your loan will be approved or not. Banks and NBFCs look at your credit score to understand how you have managed your past loans or credit cards. A low score (usually below 650) gives a signal that you might be risky to lend money to.
How to Avoid:
- Always pay your EMIs and credit card bills on time.
- Keep your credit utilisation ratio below 30%.
- Check your credit report regularly for errors. If you find any, raise a dispute.
Pro Tip: A good credit score (750 and above) increases your chance of getting loan fast approval.
2. Unstable or Low Income
Lenders want to ensure that you have enough monthly income to repay the loan. If your income is too low or irregular, your application might get rejected. Freelancers and self-employed people sometimes face this issue.
How to Avoid:
- Apply for a loan amount that suits your income level.
- Show additional income sources if possible.
- Submit proper proof like salary slips, bank statements, or ITRs.
3. High Debt-to-Income Ratio
Already paying too many EMIs? If your existing monthly debt is eating up most of your salary, lenders may think you won’t be able to manage another loan.
How to Avoid:
- Try closing some of your existing debts before applying for a new loan.
- Avoid applying for multiple loans or credit cards at the same time.
4. Job Instability or Frequent Job Changes
If you keep changing jobs often or if you have just joined a new company, lenders may think you are not financially stable. They prefer people who have been in a job for at least 6 months to 1 year.
How to Avoid:
- If you are planning a job switch, apply for the loan before changing.
- Submit offer letters or joining letters if you’re already in the transition phase.
5. Incomplete or Incorrect Documents
This is one of the most common personal loan rejection reasons. Missing documents, spelling mistakes, incorrect bank details, or even mismatched signatures can lead to rejection.
How to Avoid:
- Carefully fill your loan application.
- Double-check all documents before submitting.
- Keep PAN card, Aadhaar card, salary slips, and bank statements ready.
6. Too Many Loan Applications
If you apply for loans from multiple lenders at the same time, your credit score takes a hit. These are called ‘hard enquiries’ and too many of them make you look credit-hungry.
How to Avoid:
- Use loan comparison tools online to check eligibility first.
- Apply only with lenders where you have a higher chance of approval.
7. Mismatch Between Loan Amount and Eligibility
Sometimes people apply for a loan amount that is way higher than what they are eligible for. This mismatch leads to rejection.
How to Avoid:
- Use an online loan process calculator to know your eligibility.
- Start with a smaller loan amount and build your credit history.
Read More: How BigMudra Ensures Data Security During Your Loan Process
8. Lack of Credit History (New to Credit)
If you have never taken a loan or used a credit card, lenders have no history to judge you on. Ironically, this also causes loan rejection.
How to Avoid:
- Start with a secured credit card or a small consumer durable loan.
- Build a good repayment history for at least 6 months.
9. Location and Employment Type
Surprisingly, your address and the type of job you do also matter. Some lenders have a negative list of locations. Also, if you work in an unrecognised company or an unstable sector, it may go against you.
How to Avoid:
- Apply with lenders who serve your area.
- Choose NBFCs or fintech platforms that offer loans quick approval without traditional restrictions.
10. Processing Fees and Hidden Charges
High processing fees can sometimes become a hurdle in loan approval, especially if the fee is deducted upfront and your net disbursal amount becomes lower than expected.
How to Avoid:
- Choose a loan without processing fee if available.
- Some platforms offer zero processing fee personal loan options, especially during promotions.
Tips for Easy Approval Loans
Now that we have seen why loans get rejected, let’s focus on how to get easy approval loans without much trouble.
- Maintain a High Credit Score: Target 750+ for better chances.
- Choose the Right Lender: Go for lenders that suit your income and credit profile. Fintech apps often offer loans and quick approval with fewer documents.
- Go Digital: The online loan process is faster and more transparent. You can also track your application in real time.
- Use a Co-applicant: If your income is low, apply with a family member with a good credit score. It improves your approval chances.
- Avoid Hidden Fees: Read the fine print. Many lenders market zero processing fee personal loans, but they might add extra charges elsewhere. Always check the total cost of the loan.
Real Data: Why Loans Get Rejected in India
According to a 2024 report by TransUnion CIBIL:
- Around 25–30% of loan applications are rejected due to low credit scores.
- 15% face rejection due to unstable income or job profile.
- 10% of rejections happen due to incorrect or incomplete documentation.
- Urban areas have a 20% higher approval rate than rural regions.
- First-time borrowers (with no credit history) face a rejection rate of nearly 35%.
What Happens After Loan Rejection?
If your loan is rejected, don’t panic. Take it as a learning opportunity. But avoid applying again immediately. Too many applications can further lower your credit score.
Here’s what to do next:
- Get the Reason: Ask the lender why your loan was rejected.
- Work on It: Fix the issue, improve your credit score, correct your documents, or wait until your income stabilises.
- Reapply Smartly: Choose the right lender and apply again only when you’re ready.
Final Thoughts
Getting a loan is not just about applying randomly and waiting for magic to happen. It’s about planning, understanding the process, and knowing what lenders look for. By keeping the above points in mind, you can avoid common mistakes that lead to loan rejection.
The key is to be honest in your application, maintain financial discipline, and choose the right type of lender. Thanks to the online loan process, you don’t need to run to multiple banks anymore. You can get easy approval loans sitting at home, often with zero processing fee personal loan offers.
If you are someone looking for loans quick approval, focus on building your credit health today. A little effort now can help you avoid rejection and get faster access to funds when you really need them.
