Top 9 Reasons Why Personal Loan Applications Get Rejected

9 Common Personal Loan Denial Reasons You Shouldn’t Ignore

Although it can be upsetting to be denied a personal loan, understanding the reasons behind the denial can help you strengthen your case when you reapply in the future. Being aware of these factors can help you avoid the same mistakes next time. Let's examine the possible causes of your personal loan rejection

Reasons for Personal Loan Rejection

1. Low Credit Score

Credit score ranges from 300 to 900 and indicates your level of creditworthiness. Before approving a personal loan, a lender typically has a specific credit score threshold. Only when your credit score exceeds the acceptable threshold set by your lender (banks or NBFCs) will your personal loan application be approved. Additionally, if you have no credit history, your application might be rejected. Not all lenders demand a score of 750 or higher, though this is the ideal range as it allows you to access better interest rates. A minimum credit score of 500 is accepted by certain NBFCs, such as AFI (Ayaan Finserve India Pvt. Ltd.), which facilitates access to personal loans for those with little or no credit history

2. High Debt-to-Income Ratio

A high debt-to-income ratio raises warning signs for lenders, which usually results in personal loan rejection. It means that a considerable amount of your income is spent repaying previous debts, which raises concerns about your ability to handle future loan obligations. To mitigate this, prioritise lowering your present commitments before applying for a new loan

3. High Existing Debt

Another key reason for personal loan rejection is that you have a lot of high-interest debt. If you have many credit accounts, it will indicate to potential lenders that you may default on monthly payments. With your current debts, you may be rejected if you request for another loan, unless it is for debt consolidation. Make sure you only take out loans and credit cards when you can afford to pay them back. Avoid taking out many loans if you are unable to repay them on time. Furthermore, even if you have taken out many loans, retain a clean repayment record and maintain a balance of secured and unsecured loans. Ideally, there should be fewer unsecured loans than secured loans

4. Unstable or Insufficient Income

Your personal loan approval is significantly affected by your profession and work history. Most financial institutions prefer to lend money to people who work for reputable organisations. Your application might be denied if you work for an unlisted or unregistered company. In addition, if your salary does not exceed the lender's requirements, your personal loan application may be denied. Lenders typically require two years of work experience, including at least one year at your current position. Salaried professionals can plan and apply with confidence because some lenders, like AFI, have clear, attainable salary requirements, like a minimum monthly income of ₹30,000

5. Frequent Job Changes

Lenders might consider frequent job changes or gaps in employment as an indication of instability. Your chances may be harmed by an inconsistent work history, even if you meet the income requirements. Prior to applying, try to remain in your current position for a reasonable amount of time. AFI accepts applicants with just one year of total job stability, making it ideal for younger or transitioning professionals, whereas most lenders require two or more years of stable employment.

6. Incomplete or Incorrect Documentation

Inaccurate or missing documentation may result in a complete rejection of your application. Before submitting, make sure that all required documentation is accurate and complete, including proof of identity, proof of address, proof of income, and proof of employment.

7. Multiple Recent Loan Applications

Your credit report gets subjected to a hard inquiry every time you apply for a personal loan. A high volume of these enquiries in a brief period can lower your credit score and give lenders the impression that you are in financial distress. Make sure you don’t apply to more than one lender at once. Instead, strategically apply by comparing terms beforehand

8. Residence Instability

For security and to avoid fraud, lenders check where you live. Unverifiable addresses or frequent address changes could raise suspicions and lead to a personal loan rejection.

9. Age Criteria Not Met

The majority of banks and NBFCs have certain age requirements, typically ranging from 21 to 60. You might not be eligible if you are too young or getting close to retirement. In accordance with industry norms, AFI offers loans to applicants 21+, making it easier for young professionals to qualify

10. Not sure how to get secure Personal loans – AFI at your service

We hope this blog has helped you understand the most common personal loan denial reasons and how to avoid the key factors that lead to rejection. Being aware of these pitfalls can significantly boost your chances of approval the next time you apply. At AFI (Ayaan Finserve India Pvt. Ltd.), we know that every borrower’s situation is different. That’s why our eligibility criteria are inclusive, and our online application process is quick and hassle-free. Applying is simple — just enter your details and submit online for lightning-fast approval in as little as 30 minutes. While the process is fast, your application must be accurate and complete, as all details are verified before approval.

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