Loan Rejected? 7 Big Reasons Why (And What to Do Next)

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Loan rejected? Our simple guide explains the 7 big reasons why (like CIBIL & income) and gives you a step-by-step plan to get approved.

Introduction: That “Rejected” Feeling

Hello, and a very warm welcome to Fiknow!

Let’s be honest. Seeing the word “Rejected” on a loan application feels terrible. It can make you feel sad, angry, confused, and maybe even a little embarrassed. You had a plan—maybe a new business, a home renovation, or a medical emergency—and now, you are stuck.

But we want to tell you the most important thing first: A loan rejection is NOT personal.

The bank manager does not “dislike” you. The bank is not “judging” you. A bank is just a business. Their main job is to manage risk.

When a bank rejects your loan, they are not saying, “You are a bad person.” They are simply saying, “Based on the papers, giving you this loan is too risky for us right now.”

That’s it. It’s not a “full stop.” It’s just a “comma.” It is a solvable problem.

This is your complete, A-to-Z guide. We are here to be your financial friend. We will explain, in simple language, the exact reasons why banks say “No.” We will not use difficult words. We will explain it like a 5-year-old can understand.

More importantly, we will give you a step-by-step action plan on what to do next to fix the problem and get your loan approved the right way.

A Very Important Note (Disclaimer): We at fiknow.com are here to give you knowledge. This article is for information and education only. It is NOT financial advice. This guide will help you understand your financial health, but for specific advice, you should always talk to a financial expert.

Ready to turn that “No” into a “Yes”? Let’s begin.

Part 1: The Bank’s “Secret” Mindset (Why They Say No)

 

Before we get to the 7 reasons, you must understand how a bank thinks. A bank is not your friend. A bank is not your family.

A bank is a “shop” that sells money.

  • You “buy” ₹5 Lakhs today.

  • You “pay” for it with an EMI for 5 years.

  • The “price” you pay is the “interest.”

The bank’s only question is: “Will this person pay us back?”

To answer this, they check two things:

  1. Your “Ability” to Pay: Do you have a big enough salary?

  2. Your “Willingness” to Pay: Do you have a good history of paying bills on time?

Your “rejection” is just the bank’s computer saying “No” to one of these two questions. Our job is to find out which one and fix it.

Part 2: The 7 Big Reasons for Loan Rejection (The “Why”)

 

Let’s be detectives. Your rejection letter was just one word. But the real reason is one of these seven.

Reason 1: The “CIBIL Score” Problem (The #1 Reason)

 

This is the most common reason for 90% of rejections.

  • What it is: Your CIBIL Score is your “Money Report Card.” It’s a 3-digit number from 300 to 900.

  • The “Grades”:

    • 750-900 (Excellent): You are a “topper.” The bank loves you.

    • 700-749 (Good): You are a “good student.” You will get the loan.

    • 650-699 (Average): You are in the “danger zone.” The bank is nervous.

    • Below 650 (Poor): You “failed” the test. The bank will reject you.

Your CIBIL score is low for two main reasons:

  1. Bad Payment History: You missed your EMI or credit card payments in the past. This is the biggest “sin.”

  2. High “Credit Utilization”: This is a big one. It means you are using too much of your credit card.

    • Example: Your credit card limit is ₹1,00,000. Your outstanding bill is ₹95,000.

    • You are using 95% of your limit.

    • This makes you look “credit hungry” and desperate. The bank thinks you have no savings and are living on credit.

    • The Golden Rule: You must never use more than 30% of your card limit. (On a ₹1 Lakh limit, your bill should be below ₹30,000).

What to Do Next (The Fix):

 

  1. Get Your Report: Before you do anything else, go to the CIBIL, Experian, or Equifax website and get your full credit report.

  2. Become a “Payment Master”: From this day on, set up “Auto-Pay” for all your EMIs and card bills. NEVER be late again. This is your #1 job.

  3. Become a “30% Hero”: Look at your credit card bill. If it’s 90% full, use your savings and pay that bill down. This is the fastest way to boost your score.

  4. Wait: You cannot fix a bad CIBIL score in 1 week. It takes 6 to 12 months of good, on-time payments to re-build your score. Be patient.

Reason 2: The “Affordability” Problem (FOIR)

 

This is the second most common reason. Your CIBIL score might be good (e.g., 780), but the bank still rejects you. Why? Because you cannot afford a new EMI.

The bank does a simple math problem called FOIR (Fixed Obligation to Income Ratio).

  • The “50% Slice” Rule: A bank will never let your total EMIs be more than 50% of your monthly take-home salary.

  • Let’s do the math.

Your Salary (Take-home): ₹50,000 per month The 50% “Danger Line”: ₹25,000

  • Your Old EMIs:

    • You have a bike loan: ₹5,000 EMI

    • You have a credit card bill: ₹10,000 EMI

    • Your Total Old EMIs: ₹15,000

  • The Bank’s Calculation:

    • Your total “slice” is ₹25,000.

    • You are already using ₹15,000.

    • You only have ₹10,000 “left over” for a new EMI.

  • You Apply: You apply for a new personal loan with an EMI of ₹12,000.

  • The Result: The bank’s computer sees: ₹12,000 (new) + ₹15,000 (old) = ₹27,000.

    • This is more than your ₹25,000 “Danger Line.”

    • The computer says: “REJECTED.”

What to Do Next (The Fix):

 

  1. Pay Off an Old Loan: Look at your old loans. Can you pay one off? If you close that ₹5,000 bike loan, you suddenly have “room” for a new ₹15,000 EMI.

  2. Add a “Co-Applicant”: This is the best trick. You can “add” your spouse (if they are working) or your father to the loan.

    • Your Salary: ₹50,000

    • Your Spouse’s Salary: ₹40,000

    • Total “Family” Salary: ₹90,000

    • New 50% “Danger Line”: ₹45,000

    • Now you have plenty of room for your new loan. You will be easily approved.

  3. Apply for a Smaller Loan: Be realistic. If you were rejected for a ₹12,000 EMI, apply for a loan with an ₹8,000 EMI.

Reason 3: “Unstable” Employment or Business

 

The bank’s #1 fear is that you will lose your job and stop paying. They look for stability.

  • For Salaried People:

    • The Problem: You are a “job hopper.” You have been at your new company for only 4 months.

    • The Bank’s Rule: Most banks require you to be in your current job for at least 1 full year, and have a total work experience of 2-3 years.

    • If you just joined a new job, you look unstable. REJECTED.

  • For Self-Employed (Business Owners):

    • The Problem 1: Your business is too new. You just started 1 year ago.

    • The Bank’s Rule: They need to see at least 3 years of ITRs (Income Tax Returns) to see if your business is stable.

    • The Problem 2: Your ITR is too low. To “save tax,” you told the government you only earn ₹2.5 Lakhs per year. The bank will believe your ITR, not you. REJECTED.

What to Do Next (The Fix):

 

  • For Salaried: Wait. Stay in your current job. After you cross the 1-year mark, you will be seen as “stable.” Apply again then.

  • For Self-Employed: File your ITRs honestly. You cannot show ₹2.5 Lakhs income and ask for a ₹20 Lakh loan. You must have at least 2-3 years of good, stable ITRs.

Reason 4: Bad “Credit Behaviour” (The “Hidden” CIBIL Problems)

 

Sometimes, your score is good (e.g., 760), but your report is bad. The bank manager will read the full report, not just the score.

  • “Settled” or “Written-Off” Accounts:

    • This is a “Red Mark” of death.

    • It means you had an old loan that you stopped paying. The bank chased you, and you “settled” for a lower amount (e.g., you paid ₹50,000 on a ₹1 Lakh loan).

    • To a new bank, “Settled” means “This person is a defaulter.” REJECTED.

  • Too Many “Hard Inquiries”:

    • You applied to HDFC. Rejected.

    • So you applied to ICICI. Rejected.

    • Then Axis. Rejected.

    • Then 5 loan apps. Rejected.

    • Your CIBIL report now shows 8 “Hard Inquiries” in one week.

    • The 9th bank (SBI) sees this and thinks, “This person is desperate for money! This is a 100% risk.” REJECTED.

  • Too Many “Risky” Loans:

    • Your report shows 5 active personal loans and 6 credit cards.

    • This is a “bad mix.” You look “addicted” to risky, unsecured loans. REJECTED.

What to Do Next (The Fix):

 

  • STOP APPLYING! This is the most important advice. After a rejection, do not apply anywhere else. You are just hurting your score more.

  • Go on a “Credit Fast”: Do not apply for any new loan or card for at least 6 months.

  • Pay Down Loans: Focus on closing your small, “risky” personal loans first.

  • Go Back and “Close”: If you have an old “Settled” account, call that old bank. Ask them, “How much more do I have to pay to get a ‘Closed’ certificate?” Pay it. Getting “Closed” instead of “Settled” is a huge fix.

Reason 5: KYC or Documentation Problems

 

This is the “silly” reason, and it is very common. The bank is not rejecting you. They are rejecting your papers.

  • The Problem:

    • On your PAN Card, your name is “V. Kumar.”

    • On your Aadhaar Card, your name is “Vijay Kumar S.”

    • MISMATCH! The bank’s computer cannot verify you. REJECTED.

  • Other Problems:

    • Your signature on the application form does not match your signature on the PAN card.

    • The address on your Aadhaar card is your “village” address, but you are applying for a loan in Mumbai.

    • The bank statement you gave is blurry and not a proper PDF.

What to Do Next (The Fix):

 

  • Clean Your KYC: This is simple. Go to an Aadhaar center and get your name and current address updated. Make sure your PAN and Aadhaar match 100%.

  • Make a “File”: Before you apply, get all your papers in a clean file. (Latest 3 salary slips, 6-month bank statement PDF, Form 16, Aadhaar, PAN).

Reason 6: The “Property” Problem (for Home Loans / LAP)

 

Sometimes, you are a perfect customer. 800 CIBIL, ₹2 Lakh salary. But your Home Loan is rejected. Why? The bank is rejecting the property, not you.

  • The Problem:

    • Bad Title: The building you want to buy has a legal problem. The “Title Deed” (ownership paper) is not clear.

    • No Approvals: The builder did not get the “Building Approval” or “Completion Certificate” from the government.

    • Bank’s Valuation: You want to buy the house for ₹50 Lakhs. The bank’s expert visits the house and says, “This house is only worth ₹40 Lakhs.” The bank will only give a loan on ₹40 Lakhs. This creates a “gap.”

    • “Blacklisted” Builder: The builder is famous for bad construction. The bank has “blacklisted” him.

What to Do Next (The Fix):

 

  • Internal Link: A Loan Against Property (LAP) or a Home Loan requires two approvals: your approval and the property’s approval. To understand the full legal and valuation process, you must read our https://fiknow.com/loan-against-property-guide/.

  • Be Smart: Before you pay a “token” to a builder, ask them, “Which banks have approved your project?” If they say “No banks,” it is a RED FLAG. Run away.

Reason 7: The Bank’s Own Secret Policy

 

This is the most frustrating reason. You are perfect. 800 CIBIL, ₹2 Lakh salary, good builder. REJECTED. Why?

Every bank has its own secret “internal rule book” (credit policy).

  • Example 1: You are a journalist. The bank’s internal rule says, “Journalists have unstable jobs. Do not lend to them.” (This is just an example).

  • Example 2: You work for “ABC Ltd.” The bank’s internal list says, “ABC Ltd. is not a good company. Do not lend to its employees.”

  • Example 3: You live in an area that the bank has “blacklisted” due to past defaulters.

You did nothing wrong. You just chose the wrong bank.

What to Do Next (The Fix):

 

  • Ask the Bank: Call the bank manager and politely ask, “Sir, I have a good CIBIL and salary. Can you please tell me the real reason for the rejection?”

  • Apply to a Different Lender: If SBI (a bank) rejected you, try applying to an NBFC (like Bajaj Finserv). NBFCs have different rules and may not have “ABC Ltd.” on their bad list.

Part 3: Your 5-Step Action Plan (What to Do Today)

 

Okay, you’ve been rejected. You’ve read the reasons. Now what? Here is your step-by-step plan.

Step 1. STOP! And Breathe.

  • DO NOT re-apply to another bank immediately!

  • This is the biggest mistake. You will get another “Hard Inquiry,” your score will drop, and you will be rejected again.

  • You must wait at least 3-6 months before re-applying.

Step 2. Become a Detective (Get Your Report)

  • Your first action is to spend ₹400-500 and buy your full CIBIL report.

  • Read it. Find the “Reason” for rejection. Is it a low score? High utilization? A “Settled” account?

Step 3. Call the Bank (And Ask Why)

  • Call the bank that rejected you.

  • Ask politely: “I understand my loan was rejected. To improve my financial health, could you please tell me the reason? Was it my CIBIL score, my income, or something else?”

  • They might tell you. This information is gold.

Step 4. Make a 6-Month “Fix-It” Plan

  • Now you know the problem. Make a plan.

  • Problem = CIBIL: Your plan is to pay every bill on time and get utilization below 30%.

  • Problem = Income: Your plan is to pay off an old loan or add your spouse as a co-applicant.

  • Problem = Job Stability: Your plan is to wait 6 more months in your job.

Step 5. Apply “Smart” Next Time

  • After 6 months, your “profile” is fixed.

  • Where to apply? Apply to your own salary account bank first. They are your best chance.

  • What to apply for? Check for “Pre-Approved” offers in your bank’s app. A pre-approved offer is a 99% guaranteed “Yes.”

Part 4: The “Last Resort” (What if I Need Money Right Now?)

 

What if your rejection was for a real emergency? You need money today. A personal loan is not an option. What can you do?

First, the Warning:

  • DO NOT use the “Instant 5-Minute” loan apps you see on Facebook.

  • 99% of these are the “7-Day Loan Traps.” They are illegal. They will give you ₹3,000, ask for ₹5,000 in 7 days, and blackmail you by sending messages to all your phone contacts.

  • NEVER use them.

The Safer “Last Resort” Options (Secured Loans): These are “secured” loans. They do not care about your CIBIL score.

  1. A Gold Loan:

    • This is the fastest and best emergency loan.

    • You give your gold jewellery to a bank or a trusted NBFC (like Muthoot, IIFL).

    • They do not check CIBIL.

    • They will give you cash in 1 hour.

    • The interest rate is cheap (9-12%).

    • When you pay back, you get your exact gold back. It is 100% safe.

  2. A Loan Against FD:

    • If you have a Fixed Deposit (e.g., ₹2 Lakhs), you can get a loan against it.

    • The interest rate is super-cheap (e.g., 1% more than your FD).

    • You get the money instantly.

  3. Loan from Family/Friends:

    • This is better than a 7-day app. Be professional. Ask for the money and write a “promissory note” saying you will pay it back in 6 months.

Conclusion: Rejection is Not a Full Stop

 

Getting your loan rejected feels bad. But it is not a “full stop.” It is a “warning light” from your car’s engine.

The bank is telling you: “Hey, something is wrong. You should check it.” This rejection is not a failure. It is a free financial check-up.

It is a chance to:

  1. Finally understand your CIBIL score.

  2. Fix your bad credit habits.

  3. Pay off old, expensive loans.

  4. Organize your financial papers.

A rejection is a chance to become a smarter, stronger, and more responsible financial person. Fix the problem, wait 6 months, and you will turn that “No” into a “Yes.”

Frequently Asked Questions (FAQ) Section

 

Q1: How long should I wait to re-apply for a loan after a rejection? A: You must wait at least 3 to 6 months. If you apply again tomorrow, the new bank will see the old rejection and will also reject you. Use these 6 months to fix the problem (e.g., improve your CIBIL or wait for your job to be 1 year old).

Q2: Does “getting rejected” hurt my CIBIL score? A: This is a great question. The “rejection” itself is not recorded. But the “application” (the Hard Inquiry) is recorded. So, if you apply 5 times and get rejected 5 times, your CIBIL report will show 5 Hard Inquiries, which will lower your score.

Q3: Can I get a loan even with a 650 CIBIL score? A: Maybe. Most big banks (SBI, HDFC) will say “No.” But some NBFCs (like Bajaj Finserv, etc.) might give you a loan. But they will charge you a very, very high interest rate (e.g., 20% to 30%) to cover their risk.

Q4: Can an “agent” fix my CIBIL score if I pay them? A: NO! 100% SCAM! No one can “fix” your score. Your score is a report of your past. The only way to “fix” it is to build a new, good history by paying bills on time. Do not pay anyone.

Q5: What if the bank made a mistake? What if I did pay on time, but they marked me “late”? A: This is an excellent point.

  1. First, get your CIBIL report and find the mistake.

  2. Second, call the bank that made the mistake. Show them your proof. Ask them to send the “corrected” data to CIBIL.

  3. Third, you can file a “Dispute” for free on the CIBIL website. CIBIL will investigate and fix the mistake in 30 days.

External Links (For Your Own Research)

 

We want you to be 100% informed. Here are the official websites.

  • Reserve Bank of India (RBI) Sachet Portal: This is the official RBI website to check if a lender (Bank or NBFC) is registered. You can also file a complaint here against harassment. (https://sachet.rbi.org.in/)

  • RBI Complaint Management System (Ombudsman): If a bank is not listening to your complaint (e.g., about a wrong CIBIL entry), you can file a complaint with the RBI here. (https://cms.rbi.org.in/)

  • TransUnion CIBIL (Official): The official CIBIL website. You can get your free report here and also file a dispute if you find a mistake. (https://www.cibil.com/)

  • Experian India (Official): The official website of the second major credit bureau. (https://www.experian.in/)

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