Why Banks Reject Your Loan Applications – And How to Fix It?

Low CIBIL Score (Below 650)

Why it happens:

Your CIBIL score is a 3-digit number that tells the bank how you’ve handled credit in the past. If you’ve missed EMIs, delayed credit card payments, or taken too many loans in the past, your score drops. Anything below 650 is risky for most banks.

How to Fix It:

• Always pay EMIs and credit card bills on time – even one missed EMI can hurt.

• Don’t use more than 50-60% of your credit card limit.

• Avoid applying to multiple banks at once – each inquiry lowers your score.

• Check your CIBIL report regularly for errors and raise a correction if needed.

• Time to improve: 3-6 months of disciplined behavior can bring results.

High Existing Loan Burden

Why it happens:

If your salary is already going toward too many EMIs, banks feel you won’t be able to manage a new loan.

This is called high FOIR (Fixed Obligations to Income Ratio). Ideally, your total EMIs should not exceed 40-50% of your monthly income.

How to Fix It:

• Try to close one or two existing small loans or credit cards.

• If possible, pay off a personal loan in advance.

• Choose a longer tenure for the new loan to reduce EMI.

• Add a co-applicant to increase your eligibility.

No or Weak Income Proof (Especially No ITR)

Why it happens:

If you don’t file Income Tax Returns (ITR) or show low income on paper, banks can’t verify your repayment capacity.

This is very common as no income proof with self-employed people, freelancers, and those earning in cash.

How to Fix It:

• Start filing ITR at least for the last 2 years, even if your income is small.

• Keep all business or personal bank transactions clean and regular.

• Show proof of regular income – like rent receipts, bank credits, or GST filing.

• Some NBFCs and private lenders offer loans without ITR – consider them if urgent.

Frequent Job Changes or Business Instability

Why it happens:

If you’ve recently joined a new job or keep switching jobs every few months, it creates doubt about stability.

For business owners, banks look at profitability and cash flow – if that’s missing, it’s a red flag.

How to Fix It:

• Wait at least 6 months in your current job before applying.

• If self-employed, maintain steady bank credits and file ITR with business profit.

• Avoid showing sudden large credits or irregular income.

• Add a salaried co-applicant for better stability.

Poor Documentation or Errors in File

Why it happens:

Banks reject many loan applications due to missing papers, incorrect PAN/Aadhaar, or errors in forms.

Even a small mismatch in name or address can delay or reject your file.

How to Fix It:

• Cross-check your KYC documents (PAN, Aadhaar, voter ID) for name, DOB, etc.

• Attach proper proof for your address and income.

• Don’t leave blank fields in the form.

• Take help from a loan agent or advisor to prepare a clean, complete file.

Too Many Loan Enquiries in a Short Time

Why it happens:

If you’ve recently applied to 4-5 banks or NBFCs, it shows up as “enquiries” on your credit report.

Banks see this as a sign of desperation or credit-hunger, and reject you even if your profile is good.

How to Fix It:

• Don’t apply randomly. Always check eligibility first.

• Use pre-approved or pre-qualified offers when possible.

• Apply through a DSA (like Adiguru Financial Services) who can guide you where to apply.

• Wait at least 30-45 days before reapplying after a rejection.

Data Mismatch in Documents

Why it happens:

If your PAN card has a different spelling than your Aadhaar, or if your address is different in bank statement vs. ID proof, banks may reject or delay your application.

How to Fix It:

• Update all your documents to match each other before applying.

• Keep your mobile number and email same across documents.

• Avoid submitting handwritten forms – always fill online or typed.

Guarantor or Co-applicant Has Low Score

Why it happens:

Even if your own profile is good, your loan can be rejected if your co-applicant or guarantor has a poor credit history. Banks evaluate both parties together.

How to Fix It:

• Choose a co-applicant with stable income and good CIBIL.

• If your co-applicant has issues, apply alone if eligible.

• Avoid adding someone just for the sake of increasing eligibility.

Low Loan Eligibility Compared to Loan Amount

Why it happens:

If your income doesn’t support the loan amount you’re applying for, the bank simply says no. They don’t want to risk your inability to repay.

How to Fix It:

• Apply for a lower loan amount.

• Increase tenure to reduce monthly EMI.

• Add a co-applicant to boost total income.

• Include all your income sources – even part-time work or rental income.

10. Employer or Location is Blacklisted

Why it happens:

Some banks have internal lists of blacklisted companies, industries, or even areas (based on fraud risk).

If you work at or live in such a place, your loan may get rejected.

How to Fix It:

• Try applying to different banks or NBFCs with flexible policies.

• Check if your company is listed with the bank before applying.

• Shift to a more stable job or location if possible for future applications.