A personal loan is a multi-purpose loan which can be used for any purpose deemed necessary by the borrower. It could be for paying children tuition fees, for marriage or for any medical emergencies, personal loan can be used for anything.

Though the processing time for a personal loan has decreased over the years (maximum of 7 days), the loan approval rate is still a little less, as a personal loan is an unsecured loan where the risk involved for the bank is more. Due to this, lenders are more stringent when approving loans.

So, when a person’s personal loan application is rejected when s/he has a good credit score they need not get demoralized as there are many reasons other than credit score for loan rejection.

1.       You have too much debt

When you apply for a loan banks will look at your credit history and if you already have open loan accounts and even though you have a good credit score and you have been paying your EMIs or credit card bills, banks may think that you have too much debt and you may not have enough disposable income to pay off their debts if any emergency arises, or in case of any cash crunch.

2.       Your income may not be high enough

Lenders have income criteria for personal loans. If your salary does not match the income criteria, then your loan amount will not be approved. There is also the case of debt to income ratio which needs to match with lender criterion. Only then your loan will be approved.

3.       Your credit report hasn’t been updated recently

You may have closed some of your credit cards or even pre-paid a large value loan you had previously taken, but has not yet reflected in your credit report. This depends on how often your creditor reports to the credit bureaus. If your credit report has not been updated at the time of your application, then there is a chance, it will get rejected.

4.       You have not been at your current job for enough time

Some lenders do not approve personal loans if you are new to the job at the time of application. So, issuers prefer to approve loan applications for individuals who have at least been in their current job for 3 months or in some cases it is 6 months. So, if you are applying for a personal loan after starting a new job, do so after you have completed at least 3 months at your current job.

5.       Too soon since your last credit

Some issuers might reject your personal loan application if you applied within a very short duration after getting a new credit. It doesn’t necessarily mean that you have too much credit, it could just be that they want to see how regular you are with your payments before giving you additional credit.

6.       You have applied for too many credit

Applying too many credit at the same time may show that you are having financial trouble, or you are taking on too many credit. The first 2 lenders checking your credit report and approving your personal loan application may happen, but the subsequent enquiries by other banks will result in rejections. Though enquiries will not affect your credit score much, rejections will have a more adverse effect.

7.       You have defaulted on a credit card/loan payment long time back

Some lenders may not approve your application if there are any payment defaults, even if it had happened a long time ago and since then you have a very good track record.

8.       Mistakes on your application

If you have not completed your application properly or if there were mistakes on any data provided, your application will be rejected at the time of background verification.


You need not get demoralized if your loan application was rejected. You would have worked hard to improve your credit score, but there are other criteria that affect your loan approval. See what the issue is and fix it. Also, if your issue is one that cannot be fixed immediately you can choose alternate sources for borrowing.