A personal loan is one of the easiest and most accessible means of getting funds in case of financial requirements. Although it does offer easy access to funds, the personal loan rejection rate is still high in India. From incorrect documents to low credit scores, there are many personal loan rejection reasons that can make it difficult to get funds.

The personal loan application process has indeed become much faster in 2025. However, you must still ensure that you meet the approval criteria to improve your chances of approval. This makes it essential to understand all the personal loan rejection reasons and how you can avoid them.

Overview of Personal Loan Approval Criteria

From credit score to income stability, lenders (banks & NBFCs) consider many criteria when approving your personal loan application for a personal loan. For reference, here are the basic criteria for DMI Finance personal loans.

Criteria	Details
Minimum Age	23
Minimum Monthly Income	₹25000
Credit Score	700+
Employment Type	Salaried and Self-employed

Top Reasons for Personal Loan Rejection and Tips to Avoid

Here are some of the reasons why personal loans are rejected, along with tips on how to avoid personal loan rejection:

1. Low Score or Thin Credit Profile

One of the most common reasons for rejection of a personal loan is a poor credit history. If your CIBIL score is less than 700, you will be regarded as high-risk by most lenders. Your poor credit profile increases the probability of a personal loan being rejected.

• If you make late repayments or use more than 30% of your credit card limit, your credit score will be lowered, and you’ll be less likely to get approved for personal loans.
• If you have no credit history, it becomes difficult for the lender to evaluate risk.

How to avoid?

• Focus on increasing your credit score.
• Keep credit card usage to a minimum, i.e., below 30%.
• Make timely payments for EMIs and credit card bills.
• Build a credit history by applying for an FD-backed credit card or consumer durable loan and using it carefully.

2. High FOIR (Fixed Obligations to Income Ratio)

FOIR is a ratio of how much of your monthly income goes towards paying EMIs and other fixed obligations. A High FOIR is among the main reasons for personal loan rejections because it shows that you don’t have much income left after paying your EMIs. Here are reasons why personal loans are rejected due to high FOIR:

• You have too many active loans, which makes the lender question your ability to repay the loan.
• If a large part of your income goes towards EMIs, you won’t be able to handle new loans comfortably, which increases the risk of defaulting.

How to avoid?

• Close or prepay small outstanding loans.
• Choose a longer tenure so that the EMI burden reduces.
• Avoid taking several new loans in a short time.

With a good FOIR, you demonstrate to lenders that you can repay comfortably based on your disposable income.

3. Multiple Recent Loan Inquiries

If you apply for several loans or credit cards in a short period of time, these are considered and reported as “hard inquiries” by the credit bureaus. These inquiries raise suspicion of credit greed, which leads to rejection of the application.

How to avoid?

• Do not apply to several lenders at the same time.
• Wait 3–6 months between applications after the initial rejection.
• Check eligibility before applying officially.

4. Job Instability or Probation

Lenders prefer stable jobs and regular incomes. Frequent job switching or being on probation is one of the most common reasons for personal loan rejection. Here is why your personal loan may be rejected due to job instability:

• Lenders are uncertain of your ability to repay, as your job is unstable.
• You are at a high risk of delaying or defaulting on payments due to career breaks or changes.

How to avoid?

• Apply after finishing probation or getting a pre-approved offer.
• Show stability with 6–12 months of uninterrupted work.
• Freelancers need to maintain proper business records and tax returns.
• If you are a self-employed individual running a business, your business must be operational for at least 2 years.

Note: DMI Finance does not require any minimum working experience for personal loans. Click here to apply.  

5. Not Submitting Proper Income Documents

If you submit incomplete or missing income documents for personal loan applications, you will automatically get rejected for the application. Documents are not just important for legal compliance, but also for checking your creditworthiness. Here are the documents you must submit:

• 6–12 months of bank statements.
• Payslips, salary credits, or ITR returns.

How to avoid?

• Always keep updated salary slips, bank statements, and Form 16 with you.
• Self-employed individuals must submit ITRs and business ledgers.
• Submit documents that accurately show your income and stability.

6. KYC Mismatches

KYC mismatches in ID proofs or address proofs are also a common reason for personal loan rejections. If there is any inconsistency in your PAN card, Aadhaar card, or bank account details across documents, lenders will reject your personal loan application.

How to avoid?

• Make sure KYC is properly updated and no mismatches exist before applying for a loan. It includes minor details like an incorrect name and address.
• Make sure that the information provided in your documents is consistent and the same everywhere.

7. Past Defaults or Loan Settlements

If a borrower has previous delayed payments, loan defaults, unclosed accounts, or loan settlements, lenders will consider this risky.

How to avoid?

• Always pay your pending dues on time.
• If your credit report has errors, then raise a query and get the dispute resolved at least 3 months before applying for a loan.

8. Insufficient Income

Lenders have an income benchmark threshold to ensure that you can easily afford your EMIs: Having an income below this limit may result in rejection. For example, the minimum income required is ₹25,000/month, and you earn ₹20,000/month, then your loan may be rejected.

How to avoid?

• Before applying, make sure that the lender accepts your income level so that you do not waste your time with rejections.

9. Lender Policies & Geography Limits

Sometimes rejection is still possible even if your credit profile is strong. It may be due to lender policies or geographic restrictions. For Example:

• Some lenders might not provide lending services in your region.
• Your income suitability might not match lender requirements.

How to avoid?

• Research the lenders before applying.
• Choose loan products that are most appropriate for your profile and area.

Note: DMI Finance offers personal loans throughout India, whether you live in a metro city, a tier-1 or tier-2 city or in a village. Click here to apply.

Basics of Credit Profile

A good credit profile and CIBIL score for personal loans are very important. If your credit score is more than 700, you will get approved for personal loans easily. Here are some best practices to increase your CIBIL score for personal loans:

• Pay on time: Ensure your EMI and credit card payments are made on time.
• Limit your credit card use: Avoid using more than 30% of your credit limit on a monthly basis.
• Diversify loans: A combination of secured loans, such as home or car loans, and unsecured loans, such as personal loans or credit cards.
• Limit your application: Too many loan or credit card applications can make you look credit-hungry.
• Keep old accounts open: Your oldest credit cards give weight to your credit history, so do not close them unless there is some necessity.
• Avoid loan settlements: Pay on time and in full, because a tag of loan settlement lowers your score significantly.

Personal loan rejection can be demotivating, but you can still overcome it by following a few simple habits. To avoid getting rejected, you should always focus on increasing your CIBIL score for a personal loan. You can also improve your chances of successful approval by keeping your FOIR low and submitting the right documents.

While these reasons may still cease to exist, they don’t have to prevent you from accessing personal loans. At DMI Finance, we are committed to offering seamless access to personal loans. While our digital process makes it easy to apply, and flexible repayment tenure makes it manageable. Apply for a personal loan now.

Frequently Asked Questions (FAQs)

1. Can my personal loan be rejected even if my CIBIL score is above 750?

Yes, your personal loan application can still be rejected due to high FOIR, unstable employment history, or incomplete documents.

2. How long should I wait before I reapply once my personal loan is declined?

You should wait for at least 3-6 months before applying for a personal loan again. During this time, you must improve your credit score and profile by paying your bills and EMIs on time.

3. Will personal loan settlement impact my new loan application?

Yes, an early loan settlement will impact your new loan application, as a “settled” account signals credit risk to the lenders. It reduces your creditworthiness and, if approved, gets you higher interest rates.

4. Can a mismatch in PAN and Aadhaar lead to rejection?

Yes. Any KYC mismatch in PAN, Aadhaar, or bank accounts will lead to rejection. It is one of the top personal loan rejection reasons.

5. Should I apply for a lower loan amount if I have a high FOIR?

Yes, going for a shorter loan or extending the term can help in reducing your FOIR and improving your chances of approval.

6. Does applying to multiple lenders at the same time increase chances of rejection?

Yes, too many hard inquiries to different lenders in a short period harm your credit score and raise red flags, which lead to rejection.

7. Can I get rejected for a personal loan application if I’m on probation?

Yes, some lenders won’t approve your personal loan application if you’re on probation. Lenders usually prefer stable employment before approving a loan.

8. Do lenders reject personal loan applications based on where I live?

While income, credit score and job stability remain main factors, your address plays an important role in risk assessment.

9. If there is an error in my credit report, will the lender still reject my application?

Yes, errors can lead to rejections. Hence, you should always dispute and correct them before applying.