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
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.
Why am I not getting approved for 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.
What is the major reason the lender denied the loan? ›
Debt-to-income ratio is high
A major reason lenders reject borrowers is the debt-to-income ratio (DTI) of the borrowers. Simply, a debt-to-income ratio compares one's debt obligations to his/her gross income on a monthly basis. So if you earn $5,000 per month and your debt's monthly payment is $2,000, your DTI is 40%.
Why would my loan be rejected? ›
There are a number of factors that may result in an application for credit being refused including: Not having either a high enough income or sufficient savings to meet the repayments. The number of other loans and other financial commitments you have. How secure your employment is.
Why am I not eligible for a personal loan? ›
Your income was insufficient or unstable
Some lenders publish minimum income requirements along with their other eligibility criteria. If your income is on the lower end or is spotty, it may be worth searching for a lender that is upfront about these qualifications so you can be more confident that you're a match.
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.
What disqualifies you from getting a personal loan? ›
A personal loan applicant can be disqualified for having a credit score that's too low, insufficient income, too much outstanding debt or short credit history.
How to easily get approved for a personal loan? ›
Tip: A stable income, high credit score and low DTI ratio increase the odds you'll be approved for a personal loan. However, some personal loan lenders will consider other criteria, such as your educational background or employment history, when reviewing your application.
How to get a loan when everyone denies you? ›
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.
How hard is it to get a $30,000 personal loan? ›
For a $30,000 loan, you'll typically need a credit score above 600 just to qualify or above 700 to get a competitive rate. A high enough income: Part of the lender's evaluation of your loan application includes determining whether you can afford the payments.
Banks: Traditional banks tend to have higher credit score and income requirements than credit unions. And if you have bad credit, getting a good interest rate on a personal loan could be challenging.
What credit score is needed for a personal loan? ›
To qualify for a personal loan, borrowers generally need a minimum credit score of at least 580 — though certain lenders have even lower requirements than that. However, your chances of getting a low interest personal loan rate are much higher if you have a “very good” or “excellent” credit score of 740 and above.
How do you avoid loan rejection? ›
Here are some tips to avoid loan rejection:
- 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.
Use Collateral To Secure The Loan
If your credit score is lower than you need it to be, you could consider a secured loan. The inclusion of collateral makes secured loans easier to get approved for, as it assures the lender they'll get their money back one way or another – even if you default on the loan.
What happens if you get rejected for loan? ›
Applying for a loan will impact your credit rating. This is because the application involves a hard credit search. However, the search won't say if you were accepted or refused, so a loan rejection won't damage your credit score any more than an approval.
Why do I keep getting declined for loans? ›
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.
Why is it harder to get a personal loan? ›
Unsecured personal loans do not require collateral. The lender advances the money based simply on an applicant's creditworthiness and promise to repay. Because unsecured personal loans are riskier for the lender, they tend to come with higher interest rates and more stringent eligibility requirements.
How do you get a loan when you keep getting rejected? ›
Pay down some of your other debt: By reducing your other debt, especially addressing your DTI ratio, you can reposition yourself to potentially get approved the next time you apply. 5. Try to avoid too many applications: You might be tempted to apply with other lenders before reapplying to one that denied you.
Does being denied a personal loan affect credit score? ›
The Bottom Line. Getting denied for a loan or credit card will not be recorded on your credit report, and it will not directly impact your credit scores. To improve the chances that you'll be approved for credit, you may want to take a look at your credit before you apply, and take steps to improve it if you need to.
