It usually starts with a ping on your phone. You’re expecting a confirmation, maybe a “congratulations” message. Instead, you get a cold, automated SMS: “We regret to inform you that your personal loan application has been declined based on our internal policy.” That’s it. No phone call, no detailed feedback, and certainly no “internal policy” manual for you to read. It’s like being ghosted after a great first date. You meet all the criteria on their website—salary is good, age is right, documents are in order—yet they shut the door.
Why? Because banks are essentially professional worriers. They don’t just look at your ability to pay; they look for tiny, almost invisible red flags that suggest you might not pay. Having spent years seeing how these “black box” algorithms work, I can tell you that the reasons are often way more nuanced than just a bad CIBIL score.
Question → Explanation → Example
Why does my 1-lakh-plus salary keep getting rejected for a 5-lakh loan?
You’d think a high salary makes you a hero in the eyes of a banker. It doesn’t. Banks don’t care about your gross income; they care about your FOIR (Fixed Obligation to Income Ratio).
FOIR is basically a fancy way of asking: “After this guy pays his current EMIs, rent, and credit card bills, does he have enough left for a butter chicken dinner and our new EMI?” Most banks want your total debt obligations to be under 40-50% of your take-home pay.
The Real-World Example:
Take my friend, Vikram. He earns ₹1.2 Lakhs a month. Sounds great, right? But Vikram has a ₹40,000 home loan EMI, a ₹15,000 car loan, and usually pays around ₹10,000 in credit card minimums.
His total “fixed obligations” are already ₹65,000. That’s over 54% of his income. To a bank, Vikram is “over-leveraged.” Even though he has ₹55,000 left, the bank’s algorithm sees him as a high-risk candidate who is one medical emergency away from defaulting.
Practical Tip: Before applying, pay off that small “No-Cost EMI” you took for your phone or a lingering credit card balance. It clears up your FOIR and makes you look “leaner.”
Myth → Reality → Numbers
Myth: “My CIBIL score is 800+, so my loan is a guaranteed ‘Yes’.”
Reality: A high score is just the entry ticket. The “Credit Mix” and “Recent Inquiries” matter more than the number itself.
Banks look at your Credit Hunger. If you’ve applied for three different credit cards and two personal loans in the last 60 days, your score might still be 780, but your report is screaming “I need money urgently!” In the banking world, desperation is a red flag. Every time you hit “Check Eligibility” on a random website, a “Hard Inquiry” is logged. Too many of these, and you’re flagged as a credit-hungry borrower.
The Numbers Game:
- 0-1 Inquiry in 6 months: Safe Zone.
- 3-5 Inquiries in 6 months: Caution Zone (Interest rates might go up).
- 5+ Inquiries in 6 months: Rejection Zone (High chance of auto-decline).
Also, consider your Credit Mix. If your entire credit history consists of 5 personal loans and 3 credit cards, you have a “dirty” mix. Banks love to see a “Secured” loan (like a gold loan, car loan, or home loan) in there. It shows you can manage long-term, asset-backed debt.
Please consult your financial advisor before taking any financial decision regarding debt consolidation or new credit applications.
It usually starts with a ping on your phone. You’re expecting a confirmation, maybe a “congratulations” message. Instead, you get a cold, automated SMS: “We regret to inform you that your personal loan application has been declined based on our internal policy.” That’s it. No phone call, no detailed feedback, and certainly no “internal policy” manual for you to read. It’s like being ghosted after a great first date. You meet all the criteria on their website—salary is good, age is right, documents are in order—yet they shut the door.
Why? Because banks are essentially professional worriers. They don’t just look at your ability to pay; they look for tiny, almost invisible red flags that suggest you might not pay. Having spent years seeing how these “black box” algorithms work, I can tell you that the reasons are often way more nuanced than just a bad CIBIL score.
Question → Explanation → Example
Why does my 1-lakh-plus salary keep getting rejected for a 5-lakh loan?
You’d think a high salary makes you a hero in the eyes of a banker. It doesn’t. Banks don’t care about your gross income; they care about your FOIR (Fixed Obligation to Income Ratio).
FOIR is basically a fancy way of asking: “After this guy pays his current EMIs, rent, and credit card bills, does he have enough left for a butter chicken dinner and our new EMI?” Most banks want your total debt obligations to be under 40-50% of your take-home pay.
The Real-World Example:
Take my friend, Vikram. He earns ₹1.2 Lakhs a month. Sounds great, right? But Vikram has a ₹40,000 home loan EMI, a ₹15,000 car loan, and usually pays around ₹10,000 in credit card minimums.
His total “fixed obligations” are already ₹65,000. That’s over 54% of his income. To a bank, Vikram is “over-leveraged.” Even though he has ₹55,000 left, the bank’s algorithm sees him as a high-risk candidate who is one medical emergency away from defaulting.
Practical Tip: Before applying, pay off that small “No-Cost EMI” you took for your phone or a lingering credit card balance. It clears up your FOIR and makes you look “leaner.”
Story → Breakdown → Lesson
The Case of the “Startup Superstar”
A few months ago, a colleague of mine, Rahul, applied for a personal loan. He’s a senior developer at a high-growth startup, making serious money. He had zero debt and a 790 credit score. He was rejected by three major banks in a single week.
Rahul was baffled. “I make more than my brother who works at a government bank, and he got a loan in two hours!” he told me.
The Breakdown: Banks have an internal “caste system” for employers. They categorize companies into Category A (Super A), B, C, and “Others.” * Category A: Large MNCs, TCS, Infosys, Reliance, and Government departments.
- Category B/C: Mid-sized listed companies.
- Others/Unlisted: Startups, small businesses, and firms with fewer than 50 employees.
If your employer isn’t on the bank’s “approved” list, your application is either auto-rejected or sent to a manual underwriter who will pick it apart. Banks view startups as “unstable.” They fear that if the startup loses funding, your salary might stop.
The Lesson:
If you work for a small firm or a startup, don’t just apply to the big “blue-chip” banks. Look at NBFCs (Non-Banking Financial Companies) or Fintech lenders. They are much more flexible about employer categories, though they might charge a slightly higher interest rate. Please consult your financial advisor before taking any financial decision regarding which lender to choose.
Myth → Reality → Numbers
Myth: “My CIBIL score is 800+, so my loan is a guaranteed ‘Yes’.”
Reality: A high score is just the entry ticket. The “Credit Mix” and “Recent Inquiries” matter more than the number itself.
Banks look at your Credit Hunger. If you’ve applied for three different credit cards and two personal loans in the last 60 days, your score might still be 780, but your report is screaming “I need money urgently!” In the banking world, desperation is a red flag. Every time you hit “Check Eligibility” on a random website, a “Hard Inquiry” is logged. Too many of these, and you’re flagged as a credit-hungry borrower.
The Numbers Game:
- 0-1 Inquiry in 6 months: Safe Zone.
- 3-5 Inquiries in 6 months: Caution Zone (Interest rates might go up).
- 5+ Inquiries in 6 months: Rejection Zone (High chance of auto-decline).
Also, consider your Credit Mix. If your entire credit history consists of 5 personal loans and 3 credit cards, you have a “dirty” mix. Banks love to see a “Secured” loan (like a gold loan, car loan, or home loan) in there. It shows you can manage long-term, asset-backed debt.
The “Hidden” Reasons They Never Mention
Sometimes, the reason has nothing to do with you and everything to do with the bank’s secret map or industry fears.
- Pin Code Blacklisting: This sounds unfair, but it’s real. If a bank has seen high default rates from a specific neighborhood or pin code in the past, they might simply stop lending to everyone in that area. They won’t tell you that, of course; they’ll just say “Internal Policy.”
- Industry Risk: In 2026, banks are cautious about certain sectors. If you work in an industry that is currently seeing mass layoffs or is highly susceptible to AI-led disruption, you might be rated lower in their internal scoring model.
- Low Average Bank Balance: Banks often scrape your PDF statements to look at your “EOD” (End of Day) balances. If your balance consistently hits ₹500 before your next salary arrives, they see you as someone living paycheck-to-paycheck with no cushion for a loan EMI.
- KYC and Digital Mismatches: With the rise of digital KYC, even a tiny mismatch—like your name being “Abhishek Kumar” on your PAN but “Abhishek K.” on your electricity bill—can trigger an automated rejection.
How To: Improve Your Chances Before You Hit ‘Apply’
If you’ve been rejected once, don’t just jump to the next bank immediately. That’s a recipe for a downward spiral. Instead, do this:
- Wait 3-6 Months: Give your credit report time to “cool down” from the previous rejection and the hard inquiries.
- Check for Settlements: Ensure you don’t have a “Settled” tag on an old credit card. A “Settled” status is almost as bad as a “Default.” It means you didn’t pay the full amount and negotiated a discount. Banks hate that.
- Clean Up Your Bank Statement: For three months before applying, try to maintain a decent average balance. Avoid frequent small UPI payments that make your statement 50 pages long; it sometimes confuses the automated readers.
- Choose the Right Amount: Use an EMI calculator. Don’t ask for ₹10 Lakhs if your FOIR only supports ₹6 Lakhs. If you ask for too much, they might reject the whole thing instead of offering you a lower amount.
- Apply Where You Have a Relationship: Your “Salary Account” bank is usually your best bet. They can see your cash flow directly and are more likely to overlook minor profile issues.
[Image showing a comparison between a ‘Credit Hungry’ profile and a ‘Credit Healthy’ profile]
A Final Thought
Getting rejected for a personal loan feels personal, but it’s just math. The bank isn’t saying you aren’t a good person; they’re saying their current formula doesn’t quite fit your variables. Sometimes, the best move isn’t to find a new loan, but to wait, pay down existing debt, and build a profile that makes the banks come to you instead.
If you’re really in a bind, look at “Secured” options like a Loan Against Mutual Funds or a Gold Loan. They are cheaper, faster, and they almost never care about your “Internal Policy” or employer category.
Remember: Every financial journey is unique. Please consult your financial advisor before taking any financial decision.
What’s been your experience with loan rejections? Did you ever find out the real reason? Drop a comment or reach out—I’d love to hear the “official” excuse they gave you.