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 in order to ensure 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.

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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. Personal loans aren’t always pre-planned, unlike a home or auto loan, which are generally applied for after a thorough selection and deliberation process.

As a result, when you require credit for a pressing purpose, it is critical that your personal loan application be accepted. A personal loan refusal might have serious repercussions.

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

1. Keep a good credit score

A solid credit score has become an important factor in getting a loan approved. To have a decent chance of getting your application approved, you need to have a credit score of 750 or above.

If you want to apply for a personal loan or any loan or credit card for that matter, we recommend that you check your credit score and obtain a copy of your most recent credit report.

Because a personal loan does not require any collateral, banks are eager to protect their funds from consumer default. Your income statement or salary slip, as well as your credit score, are the only pieces of information they have to decide on whether to approve or reject your loan.

Lenders review your credit score and report to see if you have a decent repayment history. If you have a low credit score, your application may be turned down outright because it shows that you have not been responsible with credit in the past. 

2. Do not take multiple loans over a short period

If you already have several debts to pay off, adding another one will put a strain on your finances. If the lender believes you won't be able to afford another EMI on your current wage, your application may be denied.

Several borrowers may try to reduce their present debt repayments to obtain a larger loan amount. This can easily backfire because lenders will look at your credit reports before granting a loan amount that includes all of your existing debt obligations. As a result, misrepresentation like this can lead to your loan application being rejected.

It is recommended that you limit your monthly EMI to a minimum. As a result, taking on new loans while already paying EMIs on a number of loans may not be a good idea in the long run. While it may appear feasible at first, there's a good possibility you'll skip or delay payments. A high debt-to-income ratio can hinder your loan application.

Make sure you only borrow money and use credit cards when they are necessary. If you can't afford to pay them back, don't take out additional loans. If you're taking out new loans, it's a good idea to close previous loan accounts so you can keep track of your payments.

There is also a debt consolidation option, where you may combine all of your loans into a single loan, making it easier to keep track of your payments and save money on interest.

3. 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.

When you apply for a personal loan, the bank pulls your credit report from the Credit Bureau and assesses your credit score. These are counted as hard inquiries by the credit bureau and are noted on your credit report, resulting in a negative impact on your credit score.

This makes you appear credit-hungry and in dire need of funds from lenders and banks, putting your financial credibility in jeopardy.

4. 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 consistent employment history.

Your loan application is likely to be rejected if you do not have a stable job or if you have a history of quitting jobs several times. Most banks prefer customers who have a steady job or business and a consistent income.

Lenders perceive people who change employment frequently to be less deserving of loan approvals, and the offered personal loan interest rates are higher for those people. So, maintain a good employment record to guarantee that your loan application is accepted.

In general, personal loan lenders require you to have at least three years of job experience, with at least one year in the current organization. If you are self-employed, your company must have been in operation for at least three to five years. This, however, may differ between lenders.

5. 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.

6. 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.

Some additional factors for personal loan rejection 

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

  1. If you settle your loan in any way other than the terms on which you accepted it or pay after the due date, your CIBIL report will include a note about it, which will be interpreted as a negative mark on your application.

  2. If you were a guarantor for a loan that was defaulted on, it will have a negative impact on your CIBIL score.

  3. If you work for a company where a number of your coworkers have defaulted on loan payments or have poor credit scores, your application is likely to be rejected because the bank will know that your company is experiencing financial difficulties, rendering the employees unable to make their payments.

  4. If your debt-to-income (DTI) ratio is high, the bank believes you are unable to devote another percentage of your income to repay your new loan.

  5. Applicants who have been actively submitting income taxes for at least two years are frequently preferred by banks. Failure to file returns regularly demonstrates that you are financially irresponsible.

  6. Banks will consider you credit-hungry if you already have too many loans and will reject your application regardless of whether you have made timely payments or not.

  7. If the ratio of secured loans to unsecured loans is low, your new loan application is more likely to be rejected.


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.

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