What happens if my Loan Application is Rejected?

While applying for a loan, one of the fears that most applicants have is loan rejection. There are many reasons why personal loan applications get rejected. However, that does not mean that an applicant needs to get disappointed. 

Applicants can follow a few steps to avoid loan rejection.

Reasons leading to Loan Rejection

Before taking any corrective action, it is important to know the reasons for your loan rejections: 

  1. Self-employed: Many self-employed individuals often find their personal loan applications rejected. Personal loans are primarily disbursed to salaried employees as the lender is sure that the personal loan will be repaid on time. This may not be the case with self-employed individuals as they may face a dip in business or a fall in income.
  2. Non-serviceable location: Applicants from big cities to small towns now have the option to avail a personal loan online. However, not every individual is tech-savvy to apply for a loan online. Such individuals need to visit a branch or location to avail a loan. Living or residing in a non-serviceable area or  can be another reason for personal loan rejection, as the representative would be unable to visit the borrower personally during the process of verification.
  3. Salary not matching high fixed expenses: While availing a personal loan, lenders ask for salary slips as well as bank statements as vital documents. These documents are used by the lender to gauge if the borrowers’ expenditure and expenses outweigh their income. High fixed expenses against low income can be a reason for personal loan rejection.
  4. Low bureau score: Low CIBIL score has always been one of the main reasons for loan rejection. The CIBIL score is used to determine the creditworthiness of the borrower. A low score indicates that the borrower is not creditworthy and may be unable to repay the loan on time.
  5. Delinquent customer: The behaviour of the applicant determines if they are a good customer. Any indication that the customer is a delinquent or has been known for unruly behaviour will get the loan rejected.
  6. Default on existing loans: Failure to repay old and existing loans is considered to be a top reason for personal loan rejection. Lenders tend to check the applicant’s previous loan status before approving a loan application. If all the previous loans have been repaid on time, the chances of the loan being approved are higher. Any indication that the applicant has failed to do so can be a loan rejection reason.
  7. Blue-collared worker/receiving cash as income: Personal loans are disbursed to individuals who receive their income in a bank account. This may not be the case with a blue-collared worker, who receives income in cash. Being a blue-collared worker can be a reason for loan rejection as the applicant will be unable to provide proof of income in the form of a bank statement.

Tactics for your Loan Approval

There are certain steps that can be taken to avoid loan rejection:

  1. Improve CIBIL score: Before availing a personal loan, the borrower must know the importance of credit ratings and CIBIL Score. A low CIBIL score indicates that the borrower does not have high creditworthiness. Before availing a loan, check your CIBIL score. If the score is less than 750, the chances of loan rejection are higher. Applicants need to know how to improve their CIBIL Score. One way to do this is by ensuring that they have a good credit mix. Moreover, validate that the expenses do not overshadow the income.

    2. Have consistent salary inflow in a bank account: Lenders need to know that an availed loan will be repaid on time. This repayment will generally be deducted from the applicant’s bank account. Ensure that your salary is credited to your bank account every month to show that you have a constant flow of income, as this will prevent loan rejection.


  2. Do not default on loans or any other credit modes: If you have prior loans, make sure they are repaid on time to avoid loan rejection. In addition, clear any pending credit card dues and pay your utility bills on time to avoid having a red mark in your credit history.


  3. Reapplication is possible after 6 months of rejection provided the above are met: If your loan application has been rejected once does not mean that the same is bound to happen again. However, reapplying immediately is not a good idea. An ideal waiting period to reapply is 6 months. However, during this waiting period create a checklist for your previous personal loan rejection reason and correct them.
Loan Application Rejection

A Loan Rejection doesn’t mean you won't get a Loan in the future

To successfully avail a personal loan would mean that you have a good credit history, receive your income in a bank account, and have no loan defaults against your name. If you are looking to avail a personal loan and do not wish to face rejection, start by checking your personal loan eligibility. 

Financial institutions like Finnable have a set list of eligibility. If you qualify to apply for a loan, check the list of documents required at the time of application. Make sure you have all the mentioned documents available to avoid loan rejection. 

Make sure you have repaid your bills as well as any old dues on time and have a good credit score. This will ensure that your loan application is approved, and you can avail the funds in your time of need.

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