Personal Loans are incredibly easy to procure, with most banks approving and disbursing funds within hours. In addition, lenders are not concerned about how you utilise the funds from the loan in that there are no end-use restrictions. While it is quite rare, banks may sometimes reject your Personal Loan request. So let’s assess the common reasons why lenders may reject your Personal Loan requests.
- Low Income
The most common reason a lender may reject your Personal Loan application is low income. If your income is less than the minimum income requirement set by the lender, the lender may reject your loan request. For instance, most lenders require that your net monthly income should exceed ₹25,000. Now, if your monthly income is below ₹25,000, lenders may not sanction your loan.
- Low Credit Score
Irrespective of which loan you apply for, lenders ask you to provide your CIBIL or credit score. A credit score is a 3-digit score that allows lenders to assess your credit repayment behaviour. Typically, you need a score of 650+ to be considered for a loan, whereas a score of 750+ out of a possible 900 points is deemed excellent. A low CIBIL score jeopardises your chances of availing the loan. Conversely, a high CIBIL score can help you obtain the loan rapidly, with room to negotiate a considerably lower interest rate.
Low credit score? Read more here on how you can improve it!
- Job Instability
Lenders need to ensure that you have a stable source of income that allows you to repay the loan instalments. As such, job instability can also be a significant hurdle in the loan procuring process. People who switch jobs regularly, or those who are unemployed for extended periods, may not be able to procure loans easily. On the other hand, if you are employed with an organisation for more than 1-2 years, your chances of getting the loan approved can increase significantly.
- High debt to income ratio
Yet another common reason why many applicants' Personal Loan applications are rejected is a high debt to income ratio. For instance, if your monthly income is ₹25,000 and your monthly EMIs stand at ₹15,000, it means that the remaining ₹10,000 may not be sufficient for you to manage your other monthly expenses. This is a red flag for lenders since it raises suspicions about your chances of defaulting on loan EMIs in future. Also, if you have existing debt and are taking on a new loan, it makes lenders question your repayment capacity, leading them to reject your loan application.
- Tips to boost Personal Loan Eligibility
Do not let your low CIBIL score or job instability be a deterrent in the loan procurement process. You can, instead, follow these tips to boost your Personal Loan eligibility.
- Show your additional income sources – variable pay, quarterly incentives, income from other sources, etc, as part of your income proof to combat low income and enhance your eligibility.
- Pay off your existing debts, including credit card bills, on time, before procuring a Personal Loan, as doing helps correct your low credit score.
- Apply for the loan jointly with another family member, preferably one with a higher income and CIBIL score.
- Avoid applying for multiple loans simultaneously.
- Choose a lender with simple eligibility criteria which fit your requirements.
Apply for a Personal Loan with HDFC Bank
At HDFC Bank, we offer collateral-free and high-value Personal Loans at competitive interest rates. Get loans of up to ₹40 lakh with paperless documentation and repay the loan comfortably in tenures lasting up to 5 years.
Ready for your loan? Click here to get started.
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circ*mstances. Personal Loan at the sole discretion of HDFC Bank limited. Loan disbursal is subject to documentation and verification as per Banks requirement.
FAQs
Although there are various reasons for getting denied when applying for a personal loan, five of those reasons include a low credit score, low income, a high debt-to-income ratio (DTI), an unstable work history, or an inability to meet basic requirements.
Why do my loan applications keep getting rejected? ›
It may be that your credit score isn't high enough. It could be your income and expenditure don't meet the lender's affordability criteria. You can ask to see your credit report to check it's correct. You can check your credit report for free.
Which of the following are acceptable factors for rejecting a loan? ›
Why Are Mortgage Loans Denied?
- Credit Scores aren't high enough. ...
- Recent Credit History or Bankruptcy. ...
- Debt-to-income ratio is high. ...
- Employment History Isn't Consistent. ...
- Qualifying Income Isn't Enough. ...
- Debts Weren't Disclosed. ...
- Risk for the Lender is Too High. ...
- Your Application Has Errors.
A creditor must disclose the principal reasons for denying an application or taking other adverse action. The regulation does not mandate that a specific number of reasons be disclosed, but disclosure of more than four reasons is not likely to be helpful to the applicant.
Why am I struggling to get a personal loan? ›
Credit score, income and debt-to-income ratio are the main factors lenders consider when reviewing applications. Paying down debts, increasing your income, applying with a co-signer or co-borrower and looking for lenders that specialize in loans within your credit band could increase your approval odds.
Why I am not eligible for pre approved personal loan? ›
Lenders check your credit score, credit history, bank balance, and income details. If you have a high credit score, a good credit history, excellent repayment record, stable income, and sound savings in your bank account, then you are eligible for a pre-approved loan.
How can I avoid rejection of personal loan application? ›
How to Avoid Rejection of Personal Loan Application
- Maintain a low FOIR. While accepting loan applications, lenders assess various criteria. ...
- Maintain a High Credit Score. ...
- Keep an eye on your credit utilisation. ...
- Pay off your credit card dues on time. ...
- Show all your income sources.
You should request an explanation from your lender as to why your application was denied. The lender is required to provide you this explanation in writing if you request it, and must to give you copies of the credit score upon which the denial was based. Don't be discouraged. Another lender may approve you for a loan.
How to get a loan when no one will approve you? ›
Getting a personal loan with a co-signer that has a strong credit score and a solid income can boost your application. Your co-signer – ideally, a family member or close friend – will apply alongside you, and you'll both be responsible for repayment of the loan.
How hard is it to get a personal loan? ›
Bottom line. It's not difficult to apply for a personal loan. The process is typically simple and quick, and depending on the lender, you can get the funds fast.
If a creditor or lender discriminates against you in violation of the ECOA or FHA, you can complain about the issue to the creditor or a government agency, or you may sue the creditor.
What are the reasons you Cannot be denied credit? ›
prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection ...
Why did I get denied a personal loan? ›
Your credit score is too low
Good or excellent credit (a score of 690 or higher) and a history of paying other loans or credit cards on time will help you qualify for a personal loan, while fair or bad credit and a history of missed payments could get your application declined.
Why do I keep getting rejected for a loan? ›
These include: a history of missed payments or possible fraudulent activity on your file. the lender deciding you wouldn't be able to repay. not meeting a lender's specific terms and conditions, such as a minimum income level, or a mistake on your credit report – such as a typo in your address or other detail.
How do you respond to a declined loan? ›
You could also consider contacting the lender directly to double-check their requirements.
- High debt-to-income ratio. ...
- Insufficient or unstable income. ...
- Basic requirements are not met. ...
- Review your decline notice. ...
- Review your credit report. ...
- Build your credit before applying again. ...
- Apply for a lower loan amount. ...
- Pay down debt.
Some strategies for enhancing your loan eligibility include paying down existing debt, boosting your income or even applying again with a creditworthy co-borrower. Depending on your timeframe, you may also ways to improve your credit score by: Paying down debt balances.
Is it hard to get approved for a personal loan? ›
Bottom line. It's not difficult to apply for a personal loan. The process is typically simple and quick, and depending on the lender, you can get the funds fast.
Does being declined for a personal loan affect credit score? ›
When a lender accesses your credit report, a so-called hard inquiry is added to your reports. If your loan application is denied, the inquiry will remain, but the lender's decision will not appear on your credit reports. So, a declined loan will not appear on your credit report and won't directly impact your scores.
