The most common reasons for rejection include a low credit score or bad credit history, a high debt-to-income ratio, unstable employment history, too low of income for the desired loan amount, or missing important information or paperwork within your application.
Low Income
If your income is less than the minimum income requirement set by the lender, the lender may reject your loan request. For instance, most lenders require that your net monthly income should exceed ₹25,000.
If you have missed credit card or loan payments in the past, this could be causing some lenders to decline your application for a loan. You do not meet affordability checks. This means that a lender has looked at your finances and decided that you may not be able to pay back a loan.
To qualify for a personal loan, you generally need a minimum credit score of at least 580 — though certain lenders have even lower requirements than that. However, your chances of getting a low interest personal loan rate are much higher if you have good to excellent credit, typically a score of 740 and above.
Some of the easiest loans to get approved for if you have bad credit include payday loans, no-credit-check loans, and pawnshop loans. Before you apply for an emergency loan to obtain funds quickly, make sure you read the fine print so you know exactly what your costs will be.
Hardship personal loans are a type of personal loan intended to help borrowers overcome financial difficulties such as job loss, medical emergencies, or home repairs. Hardship personal loan programs are often offered by small banks and credit unions.
Although there are various reasons for getting denied when applying for a personal loan, five of those reasons include a low credit score, low income, a high debt-to-income ratio (DTI), an unstable work history, or an inability to meet basic requirements.
This can be due to several reasons, including poor credit, incomplete paperwork or failing to meet income requirements. This article will detail several personal loan denial reasons and discuss the actions you can take after a loan denial.
Low credit score
A low credit score is a frequent cause of Personal Loan rejection. It's a measure of your creditworthiness based on past financial behaviour. To enhance your credit score, pay bills and existing loan EMIs on time, avoid maxing out Credit Cards, and regularly monitor your credit report for errors.
Qualification for a $3,000 personal loan often requires a decent credit score, with many lenders preferring scores of 660 or higher for better terms. Monthly payments on personal loans are fixed, making budgeting easier, but borrowers should be cautious of potential origination fees and penalties.
Lenders have tightened their standards, making it harder for applicants to obtain loans of any kind. You can improve your odds of getting credit by having a good credit score and knowing what types of credit you're eligible for.
Your credit score is too low
Good or excellent credit (a score of 690 or higher) and a history of paying other loans or credit cards on time will help you qualify for a personal loan, while fair or bad credit and a history of missed payments could get your application declined.
The Bottom Line. Getting denied for a loan or credit card will not be recorded on your credit report, and it will not directly impact your credit scores. To improve the chances that you'll be approved for credit, you may want to take a look at your credit before you apply, and take steps to improve it if you need to.
In addition to regular loans, many credit unions offer payday alternative loans (PALs) for amounts up to $2,000. These are an especially good option if you have fair or bad credit as rates are capped at 28%, and they're designed for borrowers who struggle to be approved for credit.
If you don't pay back a personal loan, you may be hit with penalties and fees, damage to your credit, default, collections and even potential legal action if you continue not to pay.
Acceptable Documentation
Lost Employment. • Unemployment Compensation Statement. (Note: this satisfies the proof of income requirement as well.) • Termination/Furlough letter from Employer. • Pay stub from previous employer with.