Why Was My Personal Loan Rejected? Common Reasons & Fixes (Malaysia)

If your personal loan application was rejected, it could be due to factors such as low credit score, insufficient income, or high debt ratio. This guide will explain the main reasons why your loan was denied and how to fix them to increase your approval chances.

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📌 1. Low Credit Score (Below 600)

🔍 Reason:

• A low credit score indicates a poor financial history.
• Late payments, outstanding debts, or multiple loan applications can lower your score.
• Many lenders require a minimum credit score of 650 for loan approval.

💡 Fix:
✅ Check your credit score via CTOS or CCRIS (Check here).
✅ Pay off outstanding debts to improve your score before reapplying.
✅ Reduce new loan applications within a short period to avoid negative impact.
✅ Use your credit card wisely and pay bills on time to boost your credit score.

📌 Tip: A credit score of 650+ significantly improves loan approval chances!

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📌 2. Insufficient Income

🔍 Reason:

• Banks require a minimum income (usually RM2,000 – RM3,000 per month).
• If your income does not meet the lender’s criteria, your loan will be rejected.
• Freelancers or small business owners without stable income may also face rejection.

💡 Fix:
✅ Apply for loans that match your income level (e.g., Bank Rakyat, AEON, or Bank Islam are more flexible).
✅ If self-employed, provide bank statements, EPF contributions, or SSM registration as proof of income.
✅ Consider alternative lenders like Fintech or P2P lending (Direct Lending, Funding Societies).

📌 Tip: Traditional banks prefer fixed income earners. If self-employed, try Fintech or licensed money lenders.

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📌 3. High Debt-to-Income Ratio (DSR Over 60%)

🔍 Reason:

• Debt Service Ratio (DSR) measures your total debt compared to your income.
• If your DSR exceeds 60%, banks see you as high risk.
• Existing credit card debt, car loans, or mortgages can raise your DSR.

💡 Fix:
✅ Pay off some debts to lower your DSR.
✅ Apply for a smaller loan amount to reduce your monthly repayment.
✅ If DSR is too high, consider alternative loans (e.g., licensed money lenders, Fintech loans).

📌 Example of DSR Calculation:
Net income: RM3,000
Total debt repayments: RM1,800
DSR: (RM1,800 ÷ RM3,000) × 100 = 60% → High risk, loan rejection possible!

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📌 4. Incomplete or Incorrect Documents

🔍 Reason:

• Missing documents such as IC, bank statements, or income proof can lead to rejection.
• If details are unclear or inconsistent, banks may decline your application.

💡 Fix:
✅ Ensure all required documents are complete and clear before submission.
✅ If self-employed, include bank statements, tax filings, and SSM documents.
✅ Ensure your application details match your official documents.

📌 Tip: Any mismatch between application details and official documents can result in rejection.

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📌 5. Too Many Loan Applications in a Short Period

🔍 Reason:

• Every loan application results in a credit check.
• If you apply for multiple loans at once, it lowers your credit score.
• Lenders may assume you are in financial distress if you apply too frequently.

💡 Fix:
✅ Limit loan applications to 2-3 within a few months.
✅ If rejected, wait 3-6 months before reapplying to improve your credit standing.
✅ Use comparison sites (RinggitPlus, CompareHero) to check eligibility before applying.

📌 Tip: Too many applications make you look financially unstable. Apply selectively!

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📌 6. Poor Credit History or Negative CCRIS/CTOS Record

🔍 Reason:

• CCRIS records show overdue payments in the last 12 months.
• If you have debts unpaid for 3+ months, banks may reject your loan.
• If your name is blacklisted by Bank Negara Malaysia (BNM), approval is impossible.

💡 Fix:
✅ Clear all overdue payments before reapplying.
✅ If blacklisted, contact AKPK or your bank to negotiate repayment.
✅ Apply with lenders that are less strict on CCRIS/CTOS, such as Fintech lenders or P2P lending platforms.

📌 Tip: CCRIS stores records for 12 months. Paying debts consistently for 6-12 months can improve your chances!

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📌 7. Unstable Employment or Short-Term Contracts

🔍 Reason:

• If employed for less than 6 months, banks may consider your income unstable.
• Freelancers or business owners without steady income may also face rejection.

💡 Fix:
✅ If on contract-based work, apply after your contract is extended or provide a letter from your employer.
✅ If self-employed, submit bank statements, tax records, or SSM registration to prove income stability.
✅ Apply for loans from banks that accept freelancers, like Bank Rakyat or Fintech lenders.

📌 Tip: Freelancers and self-employed individuals can improve approval chances with EPF statements and tax records.

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📌 How to Increase Your Loan Approval Chances

✅ 1. Check & Improve Your Credit Score (Aim for 650+ for better approval rates)
✅ 2. Ensure Your Income Meets Loan Requirements (DSR below 50% is ideal)
✅ 3. Submit Complete & Accurate Documents (ID, payslips, bank statements)
✅ 4. Avoid Multiple Loan Applications at Once (Apply selectively to avoid score drops)
✅ 5. Pay Off Existing Debts Before Applying (Clearing debts improves approval chances)

💡 Still facing loan rejection? Let me know your financial situation, and I’ll suggest the best loan options for you! 🚀