5 Reasons why most Banks reject Personal loan request
Published on : November 22, 2023

Are you looking for a Personal loan but worried about application rejection? To get a personal loan, it is important to understand why lenders reject the application so that you can avoid mistakes and get the personal loan easily.  Let us examine five common reasons why personal loan applications are rejected by banks. Before we examine the reasons, let us understand the features of a personal loan.

What is a personal loan?

A personal loan is a type of unsecured loan that individuals can borrow from banks, credit unions, or online lenders for various personal expenses. Unlike secured loans that require collateral, personal loans are granted based on the borrower’s creditworthiness and income. These loans provide a lump sum amount, which can be used for various purposes such as debt consolidation, home improvement, medical expenses, or other unforeseen financial needs. Interest rates on personal loans may be fixed or variable, and repayment terms can vary, typically ranging from a few months to several years. The application process involves a credit check, and approval is based on the borrower’s ability to repay. Personal loans offer flexibility and can be a valuable resource for individuals seeking immediate funds for a wide range of purposes. However, responsible borrowing and understanding the terms of the loan are crucial to manage personal finances effectively.

Personal loans are popular for the following reasons –

  • Convenience
  • Flexible duration
  • Easy to process
  • Hassle-free
  • Minimum documentation required
  • Quick processing within 24-36 hours

At LoanTap, we offer personal loans in the range of ₹50,000 – ₹10,00,000 for a duration of six months to 60 months at interest rates starting from 12% per annum.

Why do banks reject some personal loan requests?

Since personal loans are collateral-free, it is important for lenders to evaluate the loan applications carefully based on the available documentation and ensure that the risk of default is minimised. Since they cannot take additional risks, they avoid granting loans when they find the application lacking in some respects.

Following can be the reasons for rejection –

1. Poor credit score

A credit score is a numerical summary of your credit history derived by TransUnion. You need to have a fixed earning for at least six months to have a  credit history. A credit score is a number from 300-900 with 300 being the lowest and 900 being the highest. Generally, a score of around 700 is considered good for loan approvals. If you have defaulted on your repayments in the past, it will show up in your credit report. This information is given primary importance by lenders. There is a very high chance of your loan application being rejected if you have a low credit score. Once rejected, you should wait for at least six months before applying again. The intervening period should be used to improve your credit score.

2. Low Income

You need to have a minimum net monthly salary of Rs. 30,000 to be eligible for a personal loan. There is no point in applying for a personal loan if the income is below this level. The lender would consider it very risky, and there is a high chance of the application being rejected. 

3. Job Instability

The personal loan application requires salary slips for the last three months and the bank statement of the salary account for the last six months. Lenders prefer to give a loan to an individual who has been with the same organization for a reasonable period. If the three salary slips belong to three different organizations or the bank statement indicates that you have switched jobs recently, the lender would be wary unless you can provide valid reasons. The position and stability of the organization are also considered. Individuals working with public sector units or blue-chip companies automatically get a preference over others because of job stability.

4. Insufficient information

Personal loan applications require minimum documentation. It is important to fill up the application correctly and in line with the documents uploaded. Any mismatch or incomplete information could lead to the application being rejected. It is in the interest of the borrower to provide correct and complete information and upload all the mandatory documents to have a fair chance of the loan being approved.

5. Multiple Loans

If the lender observes from your bank statement that you are already repaying multiple loans, it is quite possible that your application will be rejected. The lender may be of the view that you will find it difficult to repay an additional loan, leading to a  risk of default. It is better to ensure that the total of all EMIs does not exceed 30% of your net monthly income.

How to Apply for a Personal Loan?

To apply for the personal loan, visit the LoanTap website, fill up an online application form and upload the following documents-

  • PAN Card
  • Aadhaar Card/Driving License/Passport for proof of residence
  • Salary slips for the last three months
  • Bank Statement of Salary account for the last six months

Meet the eligibility criteria below –

  • Applicant must be above the age of 21
  • Applicant must be an Indian citizen / Resident
  • The monthly net salary of the applicant must be over ₹30,000 

If you fulfill all the above criteria, then you stand a very good chance of getting your loan approved and disbursed within 24-36 hours. The process is simple and takes just a few taps!


The rejection of a personal loan application by lenders can be due to several factors that applicants should be careful about. Maintaining a healthy credit score is important as all lenders rely on the credit score to check the creditworthiness of the applicant. Additionally, a lack of stable income or insufficient documentation can contribute to loan rejections. Therefore it is important to provide an accurate financial profile. A high debt-to-income ratio and existing outstanding debts may raise concerns for the lenders, impacting their willingness to extend further credit. So it is important to maintain the credit score and consider other factors to save yourself from loan rejection.
Understanding and addressing these common reasons for rejection can empower individuals to take appropriate steps like improving credit scores, reducing debts and thereby increasing the chances of successful loan applications. By understanding this and taking the necessary steps, applicants can enhance their financial standing and improve their eligibility for personal loans. LoanTap can help you get a personal loan at a flexible tenure, so make sure to consider all the factors before applying for the loan so that your application is not rejected.