Applying for a personal loan can be a straightforward way to access funds for various needs, from medical emergencies to home renovations. However, even if you believe you’ve met all the requirements, your loan application might still be rejected. In this blog, we will walk you through some of the major reasons for personal loan rejection.
Understanding the reasons for personal loan rejection can help you avoid common mistakes in loan applications and improve your chances of approval.
1. Low Credit Score
One of the primary reasons for personal loan rejection is a low credit score. Your credit score is a numerical representation of your creditworthiness based on factors such as your repayment history, credit utilisation, and length of credit history. A score below 750 is often considered suboptimal by most lenders in India.
To improve your credit score:
- Pay all your bills and EMIs on time
- Keep your credit utilisation below 30%
- Avoid applying for multiple loans simultaneously
- Regularly check your credit report for errors
Credit score issues might cause loan rejection in certain cases. You can easily check your credit score for free on the Airtel Thanks App. Monitoring your score allows you to identify issues early and take corrective action.
2. High Debt-to-Income Ratio
Another common reason for small loan rejection is a high debt-to-income (DTI) ratio. This ratio compares your monthly debt obligations to your monthly income. Lenders prefer a DTI of 40% or lower, as it indicates that you have sufficient income to cover your existing debts and the new loan EMI.
For example, if your monthly income is ₹50,000 and your current EMIs total ₹25,000, your DTI would be 50%, which might lead to loan rejection.
To improve your DTI:
- Pay off existing debts before applying for a new loan
- Increase your income through side hustles or freelance work
- Avoid taking on new debt obligations before applying
3. Unstable Employment
Lenders view stable employment as a sign of reliable income and the ability to repay the loan. The rejection causes for small loans include frequent job changes or gaps in employment, which can be red flags.
Lenders typically prefer applicants who have been employed with the same organisation for at least two years. If you’re self-employed or have a variable income, you may need to provide additional documentation to prove your income stability.
4. Incomplete or Inaccurate Application
Submitting an incomplete or inaccurate loan application is another common mistake in loan application that can result in rejection. Lenders require various documents to verify your identity, income, and residence. These may include:
- Identity proof (Aadhaar card, PAN card, passport)
- Address proof (utility bills, rental agreement)
- Income proof (salary slips, bank statements, ITR)
Ensure that all the information you provide is accurate and up-to-date. Double-check your application before submitting it, and provide any additional documents promptly if requested by the lender.
5. Not Meeting Lender’s Eligibility Criteria
Each lender has specific eligibility criteria that applicants must meet to qualify for a personal loan. These may include:
- Minimum age (usually 21 years)
- Maximum age (usually 60-65 years)
- Minimum income (varies by lender)
- Employment type (salaried or self-employed)
- Residence type (owned or rented)
Carefully review the lender’s eligibility criteria before applying, and ensure that you meet all the requirements. One of the most common mistakes in loan applications is applying for a loan without meeting the criteria. This is a surefire way to get rejected.
Tips to Improve Your Personal Loan Approval Chances
By following the tips above, you can significantly improve your personal loan approval chances:
- Check your credit score regularly and take steps to improve it
- Pay off existing debts to lower your DTI
- Maintain stable employment or income sources
- Provide complete and accurate information in your application
- Apply for a loan amount that fits your repayment capacity
- Choose a lender whose eligibility criteria you meet comfortably
The Airtel Finance Advantage
Be aware of the reasons for personal loan rejection and avoid making common mistakes in loan applications. At Airtel Finance, we understand that every borrower’s needs are unique. That’s why we offer personalised personal loans with attractive interest rates, flexible tenures, and quick disbursal.
Our eligibility criteria are designed to be inclusive, and our online application process is simple and hassle-free. Plus, you can easily check your loan eligibility and credit score on the Airtel Thanks App, allowing you to make informed borrowing decisions.
Take control of your finances today with an Airtel Finance personal loan. Apply now and get the funds you need to achieve your goals!
FAQs
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What is the minimum credit score required for a personal loan?
Most lenders prefer a credit score of 750 or above. However, some lenders may consider applicants with lower scores, albeit at higher interest rates.
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How can I improve my chances of personal loan approval?
Maintain a good credit score, have a stable income, keep your debt-to-income ratio low, and provide accurate information in your application to improve your approval chances.
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What documents are required for a personal loan application?
Typically, you’ll need to submit identity proof, address proof, and income proof. The specific documents may vary by lender.
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How much loan amount can I get approved for?
The approved loan amount depends on factors such as your income, existing debts, and creditworthiness. Lenders usually offer up to 20-30 times your monthly income.
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What if I don’t meet the lender’s eligibility criteria?
If you don’t meet the criteria, your application is likely to be rejected. Consider applying with a co-applicant or improving your credit score before reapplying.
