7 Most Common Reasons For Personal Loan Rejection (2024)

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Monika Ahuja
Monika Ahuja
I have a specialization in finance but I have written for several domains including real estate, automobile, home decor, e-commerce etc. I worked in sales for over 4 years, before choosing to become a content writer. As a writer, I have worked closely with several national and international brands and have handled their social media and website content for over 3 years. With my diverse experience in the field of writing, I am looking forward to creating some engaging content for my readers.

Have you applied for a personal loan recently but was rejected but you were never explicitly told the reason? Well, there could be many but we have curated the list of the 7 most common reasons for personal loan rejection because of which any lender refuses to give you the loan.

From poor credit history to a high number of loan applications to too many existing loans there are many reasons which raise the eyebrows of the lenders on your loan application. But do not fret, there are many things that you can do to improve your chances of getting the loan.

Lenders which also includes the banks are, nowadays especially, extremely cautious while handing out personal loans and they do keenly look into the loan applications if the applicant or the applicant fails to meet the minimum criteria a lender is likely to reject the application of the Personal Loan leaving you baffled asking yourself “why my personal loan was rejected?”

One must remember, a Personal Loan application is a type of unsecured loan which means that the lender does not take any security or collateral against the loan amount, hence, the lenders take extra precautions to not risk their money.

Let us take a look at the most common personal loan rejection reasons.

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What Are The Top 7 Reasons For Personal Loan Rejection?

The reasons listed below are the most common reasons why a lender rejects an application for a personal loan and are not ranked from most common to least common and you will see they are kind of inter-related as well.

1. Lower Credit Report

Your 3 digit credit score is one of the most important things and can impact your loan application is one of the most common reasons for personal loan rejection. If you have been paying your existing loan EMIs on time and the Credit Card Bill on a date then you are probably safe but even one default on repayments is likely to impact your Credit Score and give a negative remark on the credit report.

Credit Score

You Credit Score ranges between 300 and 900 and the higher the score the better it is considered giving you a better chance of getting the loan. A poor track record, however, is a strong reason for any lender to reject your loan application.

Additionally, thin credit history is also a reason why lenders might turn your loan application down. A thing credit history means when you do not hold any prior financial products including loans or credits, this means a lender cannot access your financial behaviour and could be hesitant in sanctioning your loan especially if the amount is comparatively high.

2. Not Meeting The Income Criteria

Income is vital when it comes to lenders in deciding whether you will be able to uphold the financial obligations as a borrower. Not meeting the income criteria or having a low annual income is another one of the personal loan rejection reasons. If your monthly income is not high enough to accommodate the monthly EMIs which comes with the loan, the chances are you will not be sanctioned the loan.

Nowadays most lenders keep a minimum income requirement for loans and only if you meet the criteria your application is considered for the loan, so do check the eligibility criteria before applying for a personal loan.

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3. Multiple Loans

Do you have too many existing loans? The lender where you have applied for a personal loan could be inclined towards rejecting your loan application. Having multiple loans is another one of the most common reasons for personal loan rejection because they might think you could end up in being a defaulter.

Multiple Loans

If you have too many open credits including credit cards, loans, your prospective bank or other lenders may see you as a risky bet. The best way you can avoid such a scenario is by paying off your current debts before applying for a new personal loan.

4. Unstable Employment

Even if your annual income meets the loan requirements your loan application could be rejected and the reason is too much job-hopping. Trust us on this, this is one of the most common reasons for personal loan rejection.

Any lender who is willing to offer loans value a stable career as for them it is a clear sign of the ability of a borrower on paying back the dues without fail. If you have been changing jobs every 6 months or so or consistently have gaps between successive jobs you may find your loan application on the rejected side.

These days it is very common to see lenders having put the clause of “at least one year in the current job” or “two years of total work experience” as the eligibility criteria for the loan.

5. Too Many Loan Applications And Rejections

Did you know that every time you apply for a loan and it gets rejected it gets recorded on your credit report? Well, now you know. Too many loan application rejections is a very common reason for personal loan rejections as every time you apply for a loan the lender fetches your credit bureau for the Credit Score and Credit Report.

Too Many Loan Applications And Rejections

Your Credit Bureau considers this inquiry a “hard inquiry” so the more number of application rejections you get the more will be the hard inquiries which will also negatively impact your overall Credit Score.

6. Incorrect Details In Loan Application

Anytime you fill out the application you must, at all cost, double-check the information you put. Any discrepancies with the proof and documents and the loan application will lead to its rejection and it happens more than you can imagine making is yet another one of the most common reasons for personal loan rejection.

Even the lack of a single necessary document can lead to the rejection of the loan application so make sure you submit all the required documents and the correct information to the lender or its representatives.

Additionally, before applying for a loan, you must check your credit reports for errors, there could be a wrong payment entry or identity theft which could negatively impact your Credit Rating and thus leading to an increase in chances of loan rejection.

7. Eligibility And Details

There have been instances where a personal loan was rejected not because of low-income level or instability in the job, the other eligibility criteria are also a very common reason for personal loan rejection. Sometimes your age, the tenure left in your job AKA your retirement age and even the minimum educational qualifications are criteria that people tend to miss.

Lenders are very specific about whom to give out loans to in order to minimise their risk of defaults. Plus a rejection on a loan application, as mentioned above, negatively impacts your credit score.


Personal Loans generally comes with a higher interest rate given they are offered without any collateral but the high interest should be sufficient to keep Personal Loans amongst the last options of availing credits only when there is an urgency for funds.

Though there is no guarantee that any lender will approve the personal loan application, however making sure you do not make any mistake listed above increases your chances multifold and decrease the chances of you asking the question, why was my personal loan rejected? To yourself.

Frequently Asked Questions (FAQs)

Question 1: Why does a personal loan get rejected?
Answer 1: There could be many reasons which could lead to the rejection of a personal loan however, the above mention 7 reasons are the most common ones which include low annual income to too many applications and rejection in the past.

Question 2: What is the best reason to give when applying for a personal loan?
Answer 2: The best reasons to give when applying for a personal loan are generally unavoidable expenses such as medical emergencies or marriage expenses. However, one should never lie about the reason not only because it is a crime but also your real reason could help the bank to offer you the best loan option.

Question 3: Can you decline an approved personal loan?
Answer 3: It is never a must to accept the personal loan once it is approved, however, it is never advised to decline a personal loan as every time you apply for a personal loan a “hard inquiry” is done into your credit report which could lead to lowering of your credit score.

Question 4: How do you avoid a personal loan rejection?
Answer 4: Though there is no guarantee of getting a personal loan approved, there are some things you can do to increase your chances of getting the personal loan approved multifold. The above list talks about just that.

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