Applying for a personal loan can be an effective way to cover emergency expenses, debt consolidation, home renovations, or medical bills. However, not every loan application gets approved. Many borrowers face rejection due to specific financial or credit-related reasons that lenders use to assess risk.
A rejected personal loan application can lower your credit score and delay access to much-needed funds. Understanding the common reasons behind loan rejections can help you prepare better, improve eligibility, and increase your chances of approval.
In this blog, we’ll explore the top five reasons why personal loan applications get rejected and RupeeQ insights to help you avoid common mistakes and secure approval easily.
Low Credit Score – The Biggest Barrier to Loan Approval
Your credit score is one of the first things lenders check before approving a personal loan. A low credit score indicates poor credit behavior, missed payments, or excessive debt, making lenders hesitant to offer credit.
How Credit Score Impacts Loan Approval
| Credit Score Range | Loan Approval Chances | Interest Rate |
| 750 – 900 | High approval chance | Lowest interest rate |
| 650 – 749 | Possible approval | Moderate interest rate |
| 550 – 649 | Low approval chance | High interest rate |
| Below 550 | Likely rejection | Very high interest rate |
Common Reasons for a Low Credit Score
- Missed or late EMI payments on past loans or credit cards.
- High credit utilization ratio (above 50%) on credit cards.
- Multiple recent loan applications, leading to frequent hard inquiries.
- Defaults or loan settlements in credit history.
How to Fix Poor Credit Score?
✔ Pay your EMIs and credit card bills on time.
✔ Keep your credit utilization below 30%.
✔ Avoid applying for multiple loans in a short period.
RupeeQ Tip – Before applying for a personal loan, check your free credit score using RupeeQ ACE. If your score is below 700, work on improving it before submitting an application to increase approval chances.
High Debt-to-Income Ratio – Too Many Existing Loans
Lenders evaluate your Debt-to-Income Ratio (DTI) to determine if you can afford another loan. If your existing debt obligations are too high compared to your income, lenders may reject your application.
How to Calculate DTI?
DTI=(Total Monthly Debt Payments/Total Monthly Income)×100
For example, if your monthly income is ₹80,000 and your total EMIs (home loan, car loan, credit card bills) sum up to ₹40,000, your DTI is 50%, which is considered high.
| DTI Range | Loan Approval Chances |
| Below 30% | High (Best range for approval) |
| 30% – 40% | Moderate (Approval possible with strict terms) |
| Above 40% | Low (Higher risk of rejection) |
How to Fix It?
✔ Pay off existing loans before applying for a new one.
✔ Avoid multiple loans running at the same time.
✔ Consider a loan balance transfer to reduce EMI burdens.
RupeeQ Tip – If your DTI is above 40%, use RupeeQ’s Loan Repayment Tracker to strategize early loan closures or prepayments before applying for a new loan.
Insufficient or Unstable Income
Lenders require proof of stable income to ensure you can repay the loan on time. If your income is too low or inconsistent, your loan may be rejected.
Minimum Salary Requirements for Personal Loans
| Lender Type | Minimum Monthly Income Required |
| Public Sector Banks (SBI, PNB, BoB) | ₹20,000 – ₹25,000 |
| Private Banks (HDFC, ICICI, Axis) | ₹25,000 – ₹35,000 |
| NBFCs & Digital Lenders | ₹15,000 – ₹20,000 |
Why Income Stability Matters?
- Frequent job changes raise red flags for lenders.
- Freelancers and self-employed individuals may face stricter verification processes.
- Low-income earners may not meet the lender’s minimum eligibility criteria.
How to Fix It?
✔ Maintain a stable job for at least 6-12 months before applying.
✔ For self-employed borrowers, file regular ITRs (Income Tax Returns) for proof of income.
RupeeQ Tip – Salaried individuals can increase approval chances by applying with a co-borrower who has a stable income. This lowers risk for lenders.
Incorrect or Incomplete Documentation
Even if you meet income and credit score requirements, a missing or incorrect document can result in rejection.
Essential Documents for a Personal Loan Application
| Document Type | Examples |
| Identity Proof | PAN Card, Aadhaar Card, Passport |
| Address Proof | Utility Bill, Rent Agreement, Aadhaar |
| Income Proof (Salaried) | Salary Slips (Last 3 months), Form 16 |
| Income Proof (Self-Employed) | ITR (Last 2 years), Business Financial Statements |
| Employment Proof | Offer Letter, Employee ID, Bank Salary Credits |
| Bank Statement | Last 6 months |
Common Documentation Mistakes
- Blurry or unreadable document uploads.
- Mismatch in name or address details across documents.
- Incorrect income details that don’t match bank statements.
How to Fix It?
✔ Double-check all documents before submission.
✔ Upload clear, high-resolution scanned copies.
✔ Ensure income details in bank statements match declared salary.
Multiple Loan Applications in a Short Period
Submitting multiple loan applications within a short period can hurt your credit score and signal credit-hungry behavior to lenders.
How Multiple Applications Impact Your Credit Score
- Each new loan application results in a hard inquiry, which lowers your score.
- Too many applications make you look risky to lenders.
- Lenders may assume you are struggling financially.
How to Fix It?
✔ Compare loan options before applying instead of applying randomly.
✔ Space out loan applications by at least 3-6 months.
✔ Check pre-approved offers instead of submitting multiple applications.
Concluding How to Avoid Personal Loan Rejection
To increase your chances of getting a personal loan approved quickly, follow these key takeaways:
- Maintain a credit score above 750.
- Keep your Debt-to-Income Ratio below 40%.
- Ensure stable employment and sufficient income.
- Submit complete and accurate documents.
- Avoid applying for multiple loans in a short period.
By understanding why loans get rejected, you can take proactive steps to improve your eligibility and secure faster approvals at lower interest rates.
