Why Can’t I Get A Loan? Reasons For Personal Loan Rejection

You must have got a call or a number of messages in your inbox that you are pre-qualified for a certain amount of loan.

This would have been quite a relief if you are stuck in a very tight financial situation.

No matter your reasons for the need for financial help, every bank has products to meet your need, and thanks to the digital era, due to the easy accessibility of the internet, now you can apply for any type of loan from the comfort of your home and get sanctioned even within few hours.

You actually need not visit the bank a number of times before your loan gets sanctioned. All you need to do is upload copies of the documents required and then went for the final signature and agreement.

And which a beam of a smile on your face, you applied for the loan with great expectations by tediously filling up all your details and then uploading all the necessary documents.

And then you might have got this message – “Sorry, we are not able to approve your loan application currently as your profile did not meet our criteria.”

What? But you got a message that you got approved for a loan, right?

It is also easy to get rejected for loans even if it’s a smaller amount and you must be wondering why you can’t get a loan.

Here are some of the main reasons why your personal loan application was rejected.

#1. Low Credit Bureau Score

A low Credit Score or Bad Credit Score is one of the main reasons why your loan application is not approved by the concerned bank.

A high bureau score (typically above 700) is preferred for a loan to be approved.

There can be many reasons why your Credit Scores are low.

The most common factors that lower your credit bureau score might be a result of previous defaults on loans or credit cards, high credit card limit utilization, irregular due payments, high unsecured debts, and a high number of loan inquiries.

All banks and finance companies check customer credit score rates to evaluate the customer’s creditworthiness.

Since a personal loan is a security-free loan, the lenders rely on your credit score to decide to lend or not to lend you their money.

Leading banks are typically willing to approve your loan application if you have a cibil score of 700 or above.

Tips To Getting Loan Approval With Low Credit Score:

  1. Apply for the loan with your spouse or someone with a good credit score.
  2. Submit the documents of your assets along with the application.
  3. Make sure to pay all credit bills and EMIs on time to maintain a good credit score and reduce the chances of loan rejection.
  4. You can regularly check your credit report and look for the above mentions reasons which affect your credit score. If you find any issue, try to fix the problem as soon as possible.
  5. Regular payments of long-term loans and credit cards help in building a mature credit profile.
  6. Give yourself a minimum of 3 months to better your credit score if nothing works at all. Then re-apply and this time, you might as well get approved.

#2. Lack Of Credit History

This might surprise you to know that sometimes loans can be rejected if you have no credit history.

Accordingly to the bureau, having a long history in the credit bureau shows financial maturity and contributes to a healthy credit score.

Banks and financial institutions are looking for partners who have a certain amount of monetary movements in their bank accounts because that means good business for your bank.

Tips To Improve Your Credit History:

Take a credit card with a low balance and use it regularly. Make your payment regularly and maintain low to minimum credit limit utilization.

#3. Poor Loan Repayment History

Any pate payments of your EMIs, Non-payment, or credit card bills negatively affect your credit score.

Lenders analyze your monthly income to see if you will be able to repay your loan.

You would also be required to submit income documents to establish your income eligibility.

Your application is most likely to be rejected if you do not meet the lender’s income requirements.

Calculating your loan amount eligibility and applying for a loan amount you are likely to be eligible for can improve your chances of getting a loan.

Tips To Improve Poor Loan Repayment History:

  1. Always try to pay your EMIs and credit card dues on time.
  2. In case you are not able to clear it on or before the due date, try to clear the outstanding payments as soon as possible.
  3. Payments done within 3 – 7 days of the due date might not show as late payment in your credit history.
  4. Try to maintain your loan repayment history for at least 3 months as banks require you to submit your banking statement of 3 months for personal loan approval.
  5. If you are planning to apply for a home loan, make sure there are no cheque bounces or EMI bounce, or credit card dues for at least 6 months period as you need to submit your banking statement of 6 months for housing loan approval.

#4. High Existing Debts

Having a number of existing debt obligations will automatically reduce your ability to have enough money left for further loan repayments.

The ratio of secured and unsecured loans matters a lot when you apply for a loan.

If you have a higher number of current unsecured loans than secured loans, the chances of your personal loan application approval are less.

Tips For Loan Approval With High Existing Debts:

  1. Apply with your partner or someone with good credit history.
  2. Try to maintain a healthy debt-income ratio by making sure that your monthly debt obligations are not very high.
  3. Avoid spending on things that you do not actually need and live within your income so that you can save more money and not have existing debts.

#5. High Number Of Loan Enquiries

If you are applying for a loan from any bank, the loan inquiries are shown in your cibil report with the date, company name, and type of loan enquired.

Too many and frequent loan inquiries are perceived as a sign of inability to manage your finances by the banks and financial institutions.

In your Credit score account, a section of the credit report highlights all loan queries by the prospective borrower.

Multiple and parallel credit queries within a short period will further increase your chances of rejection from the loan you applied for because to the bank, this reflects your desperation to get a loan and your inability to get a loan from other banks as well which leads to such a number of loan inquiries.

Tips For Loan Approval With High Number Of Loan Enquiries:

  1. Keep sufficient time period between your loan applications and try to complete the current obligations before applying for additional loans.
  2. Always take the ‘No Objection Certificate’ (NOC) whenever you close or clear your existing loan. It normally takes 7-10 days for the banks to issue a no-objection certificate once you close your loan.
  3. Many times, the bank fails to update the same in your credit history, as a result, your score will show a lower rating which results in a lower credit score. You can produce the NOC  of your previous cleared loan to the lending partner and get your loan approved there and then.

#6. Submitting Incomplete Documents

If you are in a haste and are not careful, sometimes your loan application can get rejected if your documents are incomplete or there is a discrepancy in the documents you have submitted.

Not submitting the right documents that proved your eligibility can also be one of the reasons for loan rejection.

However, this can be rectified if you have the documents required.

Tips  On Getting Loan Approval Due to Incomplete Documents:

Have a checklist and double-check the information you provided in your personal loan application to make sure you have the required documents when applying for the loan.

#7. Not Having A Steady Source Of Income

Having a regular source of income is mandatory if you are applying for a personal loan.

Banks and lenders check your ability to repay.

The minimum income requirement set by the banks will differ.

While some banks ask for a higher income, most banks will have requirements for the least amount.

Thus, if you do not have a steady job, it is more likely that lenders will assume that you don’t have the financial means to repay back on time and hence will reject your personal loan application.

Tips On Getting Your Loan Approved With No Steady Source Of Income:

  1. Avoid applying for a loan when you have just switched jobs.
  2. You can make your spouse or family member who is earning as a co-applicant.
  3. If you have any assets like a house that is in your name, that will help in getting your loan approval.

These are the most common reasons for personal loan rejections.

Don’t lose heart if you are in emergency financial need and are not able to get a bank loan, because there is an option to get the cash you need immediately.

I would suggest that the best option would be to ask your family members or friends.

But, if there is no one to help you out, then you can apply for quick cash loans offered by private lenders.

These private lenders also have some criteria for risk assessment that you have to meet in order to be able to take quick loans.

However, they are not as strict as the traditional banks, and even if you have a little bad or low credit score they do provide loans with short terms and higher interest rates.

Conclusion on Reasons For Your Loan Rejection

To sum up, the reasons for your loan application being rejected are:

  1. Low Credit Bureau Score
  2. Lack Of Credit History
  3. Poor Loan Repayment History
  4. High Existing Debts
  5. High Number Of Loan Enquiries
  6. Submitting Incomplete Documents
  7. Not Having A Steady Source Of Income

If your Credit Score is low, you will need some time like a year to bring your low credit score to an acceptable number. You need to take this seriously if you want to avail loans from the bank in the future.

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