7 Steps to Follow to Avoid Rejection of Personal Loan Application

A personal loan can be used to address a variety of financial demands. However, there are certain variables to consider so that your application is not rejected.

Because there is no collateral or security involved in a personal loan, banks have a set of criteria that they use when considering your application. Understanding why your loan application was declined or could be declined will assist you the next time you apply for a loan.

How Can I Avoid The Rejection Of A Personal Loan

Personal loans are one of the fastest-growing categories of retail lending due to the flexibility they provide. They are also instant, unsecure, and come with attractive features. 

However, borrowers must also be aware of personal loan issues such as rejection that they might face during their loan approval process. There are several rejection reasons for personal loans. 

So how can you avoid the rejection of your personal loan application? Simply follow the steps mentioned below.

Keep A Good Credit Score

Lenders rely on your credit score to assess the risk associated with you. A score of 750 and above is considered credit-worthy, and leads to many alluring perks besides a faster loan approval.

For starters, a high credit score demonstrates your ability to repay the loan on time and expedites your loan application. A bad credit score is one of the main personal loan rejection reasons. 

Hence, check your credit score frequently and maintain a high score at all times, whether you need a loan or not. In case you have a low score, obtain a credit report detailing the areas that need to be improved. 

A high credit score shows you in a positive light to the lender and allows you to negotiate the terms of the loan, such as interest rate, tenure, and more, to suit your needs. A low credit score, on the other hand, can lead to loan rejections or higher interest rates. 

Do Not Take Multiple Loans Over A Short Period

Multiple loans in a short period can eat away a considerable portion of your salary in the form of EMIs.  

Adding a new debt to your credit history might strain your finances. The lender will look for evidence that you can afford the additional payment on your current wage. So, if you cannot show proof of this, your application may be denied.

Taking several loans and credit cards without closing pre-existing applications will also portray you as credit hungry and unreliable as a borrower. 

A credit applicant should make sure that he has paid all his existing bills, including credit card bills and loan EMIs, before applying for a personal loan. This is because your track record of timely repayment of debt, credit card dues, and loan EMIs will help the lender estimate your credit score.

Do Not Make Several Inquiries And Applications For Loans 

If you apply for many loans in a short period, it means your expenditure is outpacing your income and you're trying to make ends meet by using multiple sources of credit.

Everytime you make a credit inquiry with a lender, the lender assesses your credit score by securing a credit report from credit bureaus. These types of inquiries, referred to as hard inquiries, result in a negative impact on your credit score. 

The more lenders you approach, the lower your credit score gets. This makes you appear credit-hungry and in dire need of funds from lenders and banks, putting your financial credibility in jeopardy.

Maintain A Stable Employment Record

Personal loan acceptance is heavily influenced by your occupation and work history. Your application may be refused if the company you work for is unregistered or unlisted. Furthermore, most banks provide personal loans to those who have a steady employment history.

The more frequent job changes are in a borrower's history, the less likely the lender will be to approve a personal loan. 

In addition, an unsecured loan cannot be secured against any collateral, so lenders want to see that someone is working for the same employer for at least 6 months to 2 years.

Meet The Minimum Income Criteria Required For The Loan

Your income is a big factor in deciding whether or not you get a personal loan. Because personal loans lack collateral, lenders look at your monthly income to determine if you will be able to repay the loan.

There's a good probability your loan application may be denied if the repayments on your loan amount can't be met on your income. Make sure you request a loan amount that is reasonable for you to repay.

Before completing the application form, you should speak with your lender. You could also look for NBFCs (Non-Banking Financial Companies). 

However, it's always a good idea to calculate your loan eligibility amount based on your income, so you don't end up applying rashly and being turned down.

Provide Correct Details And Documents While Applying For A Loan

Check that all of your personal information on your credit report and loan application is correct. Your application will be denied if there are any irregularities. If your name, address, PAN number, or any other detail on your credit report is incorrect, you must rectify it as soon as possible.

You must review your credit report and ensure that all inaccuracies have been corrected. Your credit score may suffer as a result of uncorrected inaccuracies. 

Check the list of required documents ahead of time and be ready with them. Keep scanned copies of all documents if you're applying for a personal loan online, and originals with required copies if you're applying offline. Also, make sure your original documents are in good shape.

Credit Utilization Ratio

Another way to improve your chances of getting approved for a Personal Loan is to limit your credit utilization. The credit utilization ratio is a ratio of credit card's total limit that has been used by its holder. 

Financial institutions consider a credit utilization ratio above 30 percent to be indicative of unhealthy financial habits, and thus will penalize you when this limit is breached. To ensure that your credit is not affected by high credit utilization, it is important to keep this ratio below 30 percent.

If you use multiple credit cards, splitting your expenses among the cards might make sense. 

Doing so demonstrates that you are not entirely dependent on a single credit card and has a positive effect on your credit score because it shows that you can function comfortably within your means.

Some Additional Factors For Personal Loan Rejection 

These are some additional details that might lead to the rejection of a personal loan:

How Does Personal Loan Rejection Impact Credit Score?

Lenders conduct a hard inquiry to evaluate the risk a borrower poses in terms of credit repayment. This hard inquiry involves the lender approaching a credit bureau for your credit report. If your credit score is not up to the lender’s liking, they will reject your loan application. 

Every hard inquiry made will lower your credit score by a few points. Hence, if you are faced with multiple hard inquiries over time, your credit score will gradually suffer from it.


A personal loan keeps you prepared for financial downturns, but it's also crucial to be able to get one. If you've been good with your credit in the past, you'll have an easier time getting your personal loan authorized. Also, after your application is granted, continue to repay your loan in the same manner so that your credit remains good at all times.

How to avoid Rejection of Personal Loan Application FAQs

Understand the reason behind rejection and make changes to meet the eligibility criteria set by the lender before applying for a personal elsewhere.

You must wait for a period, 6 months or more, before reapplying for a loan. While there is no guarantee that your loan application will be rejected again, you must take some time to improve your credibility to reduce the chance of rejection.

A loan rejection will further lower your credit score making it harder for you to gain credit in the future unless you take strict measures to improve it.

A loan rejection can be caused by a multitude of factors from low cibil score to missed repayments. Look at your credit report and history to understand where you stand as a borrower. Inculcate healthy financial habits into your routine and make amends to improve past financial missteps. 

It could be a low credit score, high credit utilization ratio, too many existing loans, no credit history, lack of job stability, and more. There are several loan rejection reasons. 

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