Applying for a personal loan only to have it rejected due to low income can be frustrating, especially when you need urgent funds. Lenders consider income as a key eligibility factor to ensure that borrowers can repay the loan without financial strain. If your income is below the lender’s required threshold, your loan application may be rejected.
However, a low income doesn’t mean you can’t get a loan. There are several ways to improve your eligibility, increase your chances of approval, and explore alternative borrowing options.
In this blog, we’ll cover:
- Why lenders reject loan applications due to low income
- Steps to take if loan is rejected
- How to improve chances of loan approval
- Alternative loan options for low-income borrowers
- RupeeQ insights to help you find the right financial solution
Why Do Lenders Reject Loan Applications Due to Low Income?
Lenders assess a borrower’s ability to repay a loan based on monthly income, employment stability, and debt obligations. If your income is too low, lenders may reject your application due to:
- Failure to meet the minimum income requirement set by the bank or NBFC.
- High Debt-to-Income Ratio (DTI), meaning your existing EMIs are already consuming most of your income.
- Unstable income sources, such as freelancing or commission-based earnings.
- Mismatched income declarations, where the income on your documents doesn’t match bank statements.
- High loan amount request, which exceeds the borrower’s repayment capacity.
RupeeQ Tip – Before applying for a loan, check the minimum income criteria of different lenders. Many NBFCs and digital lenders offer personal loans for borrowers with incomes as low as ₹15,000 per month.
What to Do If Your Loan is Rejected Due to Low Income?
Review the Rejection Reason and Assess Your Financial Standing
Before reapplying for a loan, the first step is to understand why your application was rejected. Most lenders provide a loan rejection email or message stating the reason for denial. Check if your declared income matches your bank statements and verify whether your Debt-to-Income Ratio exceeds 40%.
It’s also important to review your credit report to ensure there are no discrepancies. A low income combined with a poor credit score (below 650) significantly reduces approval chances. If errors exist in your credit report, dispute them before reapplying.
Improve Your Monthly Income Before Reapplying
If your income is too low for loan eligibility, consider increasing your earnings before reapplying. This could mean taking up freelancing, part-time work, or additional projects to boost your monthly income.
For salaried employees, a salary hike, job switch, or internal promotion can increase income and improve loan eligibility. If you are self-employed, ensure your income is documented through bank statements and regular ITR filings to establish financial stability.
How to Improve Your Chances of Loan Approval?
Opt for a Lower Loan Amount
Applying for a high loan amount with a low income increases the likelihood of rejection. Instead of applying for a large sum, opt for a smaller loan amount that aligns with your repayment capacity.
For example, if your monthly income is ₹20,000, applying for a ₹5 lakh loan may lead to rejection. However, a ₹1.5 lakh loan with a longer tenure could be approved.
Apply with a Co-Signer or Co-Applicant
If your income is too low, adding a co-signer with a stable, higher income can significantly improve approval chances. A co-applicant, such as a spouse or parent, shares the loan responsibility, making lenders more willing to approve the application.
Example
Raj applied for a ₹3 lakh loan with a salary of ₹18,000 but was rejected. He reapplied with his brother (₹50,000 salary) as a co-applicant, and his loan was approved.
Choose a Longer Repayment Tenure
A longer tenure reduces EMI burden, making the loan easier to manage on a lower income. Lenders often approve loans where EMIs are within 40% of monthly income.
For instance, if Rahul applies for a ₹2 lakh loan at 14% interest:
- A 2-year tenure results in an EMI of ₹9,600, which is high for a ₹20,000 salary.
- A 5-year tenure results in an EMI of ₹4,650, making it more affordable.
RupeeQ Tip – Use the RupeeQ Personal loan EMI Calculator to determine an affordable EMI before applying for a loan. Choosing the right tenure improves approval chances.
Alternative Loan Options for Low-Income Borrowers
If your income is too low for a standard instant personal loan, there are alternative borrowing options to consider.
Small Loan or Microloan (Up to ₹50,000)
Many NBFCs offer small-ticket loans for low-income borrowers with minimal documentation and quick disbursal. These loans can help build credit and qualify for larger loans later.
Secured Loan Against Fixed Deposits or Gold
If you have an FD, gold, or investments, you can get a loan against collateral at lower interest rates. These loans are easier to get approved since they are backed by assets.
Credit Line or Overdraft Facility
A credit line allows borrowing in smaller amounts as needed, rather than taking a lump sum. This is useful for freelancers or irregular earners.
Government Schemes for Low-Income Borrowers
The Pradhan Mantri Mudra Yojana (PMMY) offers small business loans to individuals with low incomes. Additionally, some state and central government schemes provide low-interest loans for education, housing, and self-employment.
RupeeQ Tip – If traditional loans aren’t an option, explore credit lines or small-ticket loans through RupeeQ’s lender partners. Comparing lenders ensures you get the best deal.
Final Thoughts: Steps to Take After Loan Rejection
If your personal loan application was rejected due to low income, take proactive steps before reapplying. Improving your financial profile can help secure approval in the future.
Key Takeaways
- Review the rejection reason and ensure your income documentation is accurate.
- Increase your income through side gigs, salary hikes, or business expansion.
- Apply for a lower loan amount with a longer tenure to improve eligibility.
- Consider a co-signer or co-applicant to strengthen your application.
- Explore alternative financing options such as secured loans or government-backed loans.
By following these strategies, you can boost your chances of approval and secure a personal loan that matches your financial situation.
