4 Reasons Your Loan Application Gets Rejected, And What To Do About It

Mikaela Anthonysamy

Mikaela Anthonysamy

Last updated 28 February, 2022

Picture this: You’ve been wanting to renovate your home for some time now. There’s quite a bit of work to be done, so you’re going to need some extra cash to fund your dream home makeover. Your best option would be to head over to a bank and apply for a personal loan.

You then go ahead and send in your application, but days later you’re told that it’s been rejected. You’re not sure why this happened, and you don’t know what you can do about it. In this article, we’ll look at 4 common reasons why loan applications get rejected.

1. You don’t meet the salary requirements

This may seem like a super simple thing, but it’s possible to overlook these details sometimes. Before applying, double-check that you are actually eligible to apply. If you’re not sure what type of loan is best for your income bracket, consult with a bank official or use a loan calculator tool.

But having a stable income is just one thing. You also need to prove that you’re earning enough. When applying, make sure you furnish the required documents such as payslips or other proof of income that the bank may ask for.

2. Poor credit score/ no credit score

If you know what the purpose of a credit score is, you’d know why it’s important to maintain a decent one. A good credit score means that you don’t have a lot of debt and you’ve been paying off your financial obligations on time. Naturally, a bank would be happier to give you a loan if your credit score is good enough.

Related: 6 Ways To Improve Your Credit Score


However, while better debt management does result in a better credit score, not having any financial commitments at all will not necessarily mean an impressive score. If there has been no history of you having a loan or credit card before, you might end up with no credit score. This way, the bank will not be able to assess whether or not you’ll pay up on time, even if you earn really well.

3. Unhealthy debt service ratio

A debt service ratio (DSR) is another way banks can determine whether or not you’ll be able to pay your loans. This is done by calculating the ratio of your debts to your household income. Generally, your DSR is determined using the following formula:

Total of monthly commitments + amount of loan you’re applying for


Net income (after deducting EPF, SOCSO etc.)

Once you get a number, multiply that by 100 and you now know your DSR! Typically, most banks prefer a DSR of 30-40%, but some of them might accept a higher DSR in certain scenarios. It also largely depends on the type of loan you’re applying for; some of them require lower DSRs and some just don’t.

Before you apply for the loan, find out from the bank what the DSR for that particular type of loan is. That way, you can avoid getting rejected for a loan you don’t qualify for.

Related: 3 Ways You Can Settle Your Debts In Malaysia

4. You have several pending loan applications elsewhere

You might think of applying for multiple loans at once in the hopes of getting at least one approved. But a lesser known fact is that this can actually work against you. Banks can check to see if you’ve been applying for loans elsewhere. And while it’s not wrong to apply in more than one place, too many applications may cast a doubt on how genuine you are. To be safe, limit your applications to 2-3 banks at one time.


Besides that, if your bank finds out that many of your loan applications have been rejected elsewhere, this can affect your loan approval. There’s also the issue of applying at the right bank. Some banks are better suited for certain types of loans. So instead of just applying to, say, 10 banks at the same time, check to see if you’re applying at the best bank for your type of loan.

What can you do about a loan application rejection?

Not getting the approval for a much-needed loan isn’t fun, but there are some things you can do to help yourself. The first thing is to find out why it was rejected. Once you know the reason, you can take the next steps. For example, if the issue was due to a bad credit score, you can work on improving it before reapplying. Or if it was to do with your salary or some incomplete documentation, you can provide whatever is missing to the bank.

In the event you feel that you fulfill all the requirements but your application was rejected due to a mistake, you can appeal the bank’s decision if that option is available to you.

Learned something new? Be sure to share this article with a friend or two! And if you’re thinking of applying for a personal loan, let us help you. Apply within minutes, with just a few simple steps. Click the link below to find out more:

Check Out The Best Personal Loans in Malaysia!

Lawyer-turned-writer, Mikaela demonstrates the sharp legal acumen to analyse topics and draw out the most valuable insights.


Use a personal loan to consolidate your outstanding debt at a lower interest rate!

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