When you apply for a Personal Loan, the last thing you want is to face rejection. Understanding why Personal Loans are declined is crucial in navigating your path to approval. This blog sheds light on the eight primary reasons for Personal Loan rejection and offers actionable advice to bolster your loan application.
8 reasons for Personal Loan rejections
1. Low credit score
A low credit score is a frequent cause of Personal Loan rejection. It's a measure of your creditworthiness based on past financial behaviour.
To enhance your credit score, pay bills and existing loan EMIs on time, avoid maxing out Credit Cards, and regularly monitor your credit report for errors. A score of 750 and above is generally favourable in loan evaluations.
2. Multiple loan applications
Applying for several loans simultaneously or frequently inquiring about credit can lead to a Personal Loan being declined. Lenders view this as a sign of financial desperation or poor money management.
To avoid this, apply for loans sequentially and only when necessary. Keep a strategic gap between applications.
3. Large existing debts
A high debt-to-income ratio is a red flag for lenders, often leading to Personal Loan rejection. It implies that a significant portion of your income goes into repaying existing debts, raising doubts about your ability to handle additional loan burdens.
To mitigate this, focus on reducing your current debts before applying for a new loan.
4. Not meeting the income criteria
Every lender has specific income criteria. Not meeting these thresholds is a key bank loan rejection reason. Ensure you meet or exceed the minimum income requirement set by the lender.
If your current income falls short, waiting until your financial situation improves may be wise.
Also Read: Low-interest Personal Loans: beginner's guide
5. An unstable employment history
Frequent job changes or gaps in employment can be major reasons for Personal Loan rejection, as lenders assess income stability before approving a loan.
To counter this, aim to have a steady job with a single employer for a substantial period before applying for a Personal Loan. A stable employment history assures lenders of consistent income flow.
6. Missing or incorrect documents
Incomplete or incorrect documentation can lead to a Personal Loan rejection email from lenders. Every detail counts, so ensure all required documents are thoroughly checked, accurate and up-to-date. This includes proof of income, employment, residence and identity documents.
7. Age and nationality restrictions
Age and nationality often play crucial roles in Personal Loan approval. Most banks have specific age limits, usually between 21 and 60 years. They also require applicants to be citizens or permanent residents of the country. If you fall outside these age brackets or don't meet the nationality criteria, it can lead to Personal Loan rejection. This is particularly important for expatriates or non-residents, who might face stricter scrutiny.
8. Insufficient credit history
A common reason for Personal Loan rejection, especially for young applicants or new borrowers, is insufficient credit history. Lenders gauge risk based on your credit history, and a lack of a significant credit history makes it difficult to assess your creditworthiness.
To build a credit history, consider starting with a low-limit Credit Card or a small loan, and ensure timely repayments. Regularly using and responsibly managing credit will gradually build a credit profile that can satisfy loan criteria.
Conclusion
A Personal Loan can be an excellent resource for bridging financial gaps, whether you're consolidating debt, financing a large purchase or covering unexpected expenses. However, Personal Loan approval is not guaranteed and can be hindered by many factors. Understanding the reasons for Personal Loan rejection is crucial, and taking proactive measures to align with the lender's criteria can greatly increase your chances of approval. Remember, a strong application showcases financial stability, creditworthiness and responsible borrowing behaviour.
Consider applying for Axis Bank's Personal Loan to meet your financial needs. You can avail of amounts of up to ₹40 lakh, competitive interest rates starting from 10.65% p.a., and flexible repayment tenures ranging from 12 to 84 months. Experience streamlined processing with minimal documentation with Axis Bank Personal Loan.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
