Explained: Why Your Loan Application Can Be Rejected Despite Your High Income

Whether you wish to buy a home, a car, or start a business, most of us would require a loan to bridge the monetary gap between our dreams and reality. By giving us the required funds, banks, fintechs, NBFCs, etc. help you realise various life goals, right?

But the key to getting these loans is the application¡¯s approval. And sometimes, even if you have a high income, your loan application can get rejected. Wondering why? Read on as we help you understand the reasons for loan rejection despite having a high income:

5 Reasons For Loan Rejection

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Poor or no credit score

Given that most lenders prefer lending to borrowers with a good credit score and a credit history showing financial discipline and adequate repayment capacity, having no or a low credit score can be a big reason for your loan rejection, whether it's a home loan, a car loan, a personal loan, or others.

Also Read: How A Good Credit Score Can Help You Save Lots Of Money

Failure to meet the eligibility criteria

Every bank or other type of lender has different eligibility criteria for various credit products, such as the minimum income, area of residence, age, type of employer, etc. So, if you, as a borrower, don't meet the eligibility criteria set by the lender, your loan application can be rejected.

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Also Read: How To Manage Loan EMIs After Losing Your Job

Having a high FOIR

The fixed income-to-obligation ratio (FOIR) refers to the proportion of the borrower¡¯s income that is already being utilised to repay EMIs. Most lenders generally prefer lending to borrowers with FOIR up to a maximum of 40¨C50%, including the current loan application¡¯s expected EMI. In case your FOIR is too high, it shows a big chunk of your income is already going towards EMI repayments, which makes you a riskier borrower who can default on the EMIs. Thus, lenders may reject such applicants.

Unstable employment history

Yes, you read that right. Many lenders do tend to hesitate to lend to borrowers with a history of frequent job hopping, like every few months. Even though the reason for your job hopping may be a better career opportunity or a higher income, this is seen as a sign of an unstable career in the eyes of the lenders which can result in your loan application getting rejected.

Improper documentation

Another common reason for loan rejection is the absence of adequate documentation. Whatever loan you wish to take, proper documentation is important for the loan application¡¯s processing and approval. So, failure to submit the right documents while applying for the loan often leads to its rejection. That is why, before you submit your application to the chosen lender, make sure you have the required documents according to the lender¡¯s requirements. This eases the process, and your chances of loan approval get boosted with the right documentation.

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