Tips & Guides
This Is Why Loan Approvals Feel Harder Than They Used to Be
R
Rahul Kapoor
Banking Policy Analyst & Financial Journalist
Jan 30, 2026
11 min read
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Priya applied for a home loan in 2019. She earned ₹55,000 a month, had a credit score of 720, and got approved in less than a week.
Fast forward to 2025. Her colleague Arjun earns ₹75,000, has a score of 740, and applied for the same type of loan from the same bank. He got rejected.
When Arjun asked why, the bank gave him a vague answer about 'internal policies' and 'risk assessment.' He was confused. His salary was higher. His credit score was better. What went wrong?
If this sounds familiar, you're not alone. Across India, borrowers are noticing the same thing: loan approvals feel harder, slower, and more unpredictable than before. And they're right.
Fast forward to 2025. Her colleague Arjun earns ₹75,000, has a score of 740, and applied for the same type of loan from the same bank. He got rejected.
When Arjun asked why, the bank gave him a vague answer about 'internal policies' and 'risk assessment.' He was confused. His salary was higher. His credit score was better. What went wrong?
If this sounds familiar, you're not alone. Across India, borrowers are noticing the same thing: loan approvals feel harder, slower, and more unpredictable than before. And they're right.
What Most People Think Is Happening (And What's Actually True)
The common belief is that banks have simply 'become stricter.' That's partly true—but it's not the full picture.
What's really changed isn't just the rules. It's the entire system banks use to decide who gets money and who doesn't.
A few years ago, loan decisions were mostly manual. A bank officer would check your salary, your credit score, maybe your job stability, and make a call. Today, it's different. Banks use algorithms, AI-driven risk models, and real-time data analysis. They don't just look at you—they look at patterns across thousands of borrowers like you. And those patterns have changed dramatically since 2020.
What's really changed isn't just the rules. It's the entire system banks use to decide who gets money and who doesn't.
A few years ago, loan decisions were mostly manual. A bank officer would check your salary, your credit score, maybe your job stability, and make a call. Today, it's different. Banks use algorithms, AI-driven risk models, and real-time data analysis. They don't just look at you—they look at patterns across thousands of borrowers like you. And those patterns have changed dramatically since 2020.
What Banks Started Seeing After the Pandemic
Here's what happened behind closed doors. During COVID-19, millions of people lost jobs, took salary cuts, or faced income disruptions. Many who had loans couldn't pay them back on time. Defaults spiked. Banks lost money.
The Reserve Bank of India (RBI) responded by tightening regulations on unsecured lending—personal loans, credit cards, and consumer financing. They wanted to prevent another wave of bad loans.
The Reserve Bank of India (RBI) responded by tightening regulations on unsecured lending—personal loans, credit cards, and consumer financing. They wanted to prevent another wave of bad loans.
The New Questions Banks Ask
Instead of asking 'Can this person afford the EMI?' they now ask:
• Will this person still be able to pay if their income drops by 20%?
• What does their spending behavior say about financial discipline?
• Are they in a sector that's vulnerable to layoffs?
• Will this person still be able to pay if their income drops by 20%?
• What does their spending behavior say about financial discipline?
• Are they in a sector that's vulnerable to layoffs?
The Hidden Factors That Weren't a Big Deal Before
A few years ago, certain things didn't matter much. Now, they can make or break your application.
Your Employer's Industry
If you work in a sector that saw mass layoffs recently—like startups, real estate, or certain IT services—banks see you as higher risk, even if your own job is secure.
Your City and Pin Code
Banks now analyze loan performance by geography. If defaults are high in your area, it affects everyone applying from that location. You might be financially sound, but your neighbors' repayment history could work against you.
Your Digital Footprint
Some lenders now look at app-based spending, UPI transaction frequency, and even your social media activity (if you've linked accounts). They're trying to understand lifestyle and spending habits beyond what's in your bank statement.
How You Use Credit
Paying your credit card bill on time used to be enough. Now, banks also check how much of your limit you use, how often you withdraw cash, and whether you're only paying the minimum due.
Job-Hopping Frequency
Switching jobs for better pay used to be seen as ambition. Now, if you've changed employers three times in two years, banks worry about income continuity—even if each move was a promotion.
Common Mistakes Borrowers Don't Even Know They're Making
Most rejections don't happen because of obvious red flags. They happen because of small, invisible mistakes that add up.
Applying to Too Many Lenders at Once
It seems logical: apply everywhere and see who approves. But every application triggers a 'hard inquiry' on your credit report. Too many in a short time makes you look desperate, and your score drops.
Closing Old Credit Cards
You might think closing unused cards improves your profile. But it actually reduces your total available credit, which increases your utilization ratio—and that hurts your score.
Ignoring Small Dues
A ₹300 unpaid electricity bill or a forgotten subscription charge might seem trivial. But if it gets reported to a credit bureau, it stays on your record for years.
Not Checking Your Credit Report
Errors happen. Wrong addresses, loans you never took, payments marked late even though you paid on time. If you don't check and dispute these before applying, the bank sees the error—and rejects you based on false information.
What Changed in Bank Policies (That Nobody Tells You About)
Here's what's happening at the policy level, quietly, without big announcements.
Minimum Credit Score Requirements Went Up
A score of 700 used to be decent. Now, many banks want 750+ for unsecured loans. Some premium lenders won't even consider you below 780.
Debt-to-Income Ratios Got Stricter
Earlier, banks were okay if your EMIs took up 50–60% of your income. Now, many prefer it to stay below 40%. If you're already paying off a car loan and a credit card, adding another EMI might push you over the limit.
Income Verification Became More Rigorous
Salary slips aren't enough anymore. Banks want six months of bank statements, Form 16, employer verification, and sometimes even a call to your HR department.
Loan Amounts Got Capped
Even if you qualify, banks now have internal limits on how much they'll lend to someone in your salary range. You might be eligible for ₹10 lakhs on paper, but the bank's algorithm caps you at ₹6 lakhs based on risk modeling.
What Borrowers Should Realistically Expect Today
If you're planning to apply for a loan in 2025 or beyond, here's the reality check.
Approval Is Not Guaranteed
Banks have the right to reject based on internal risk policies, and they don't always explain why.
Your Credit Score Matters More Than Ever
It's not just about eligibility anymore—it directly affects your interest rate, loan amount, and approval speed.
Documentation Is Non-Negotiable
Missing or inconsistent paperwork will delay or kill your application. Keep everything updated and ready.
Rejections Don't Mean You're Irresponsible
Sometimes it's just timing, or the bank's risk appetite that month, or factors completely outside your control.
How to Improve Your Chances (Without Guarantees)
No one can promise you'll get approved. But there are things you can do to tilt the odds in your favor.
Check Your Credit Report Early
Look for errors, unpaid dues, or outdated information at least three months before applying. Dispute anything incorrect with the credit bureau.
Pay Down Existing Debt
Reducing your EMI burden improves your debt-to-income ratio and makes you less risky.
Space Out Applications
Wait at least 30–45 days between applications. Or use eligibility checkers that don't trigger hard inquiries.
Keep Credit Utilization Low
Even if you pay in full every month, high utilization signals financial stress. Keep it below 30%.
Maintain Stable Employment
If you're planning to switch jobs, consider waiting until after your loan is approved and disbursed.
Related Articles You May Find Helpful
Explore these guides to better understand the loan landscape:
Why banks reject loans with good salary
Understand the hidden factors beyond salary that affect approval.
Improve your credit score
Learn how to boost your CIBIL score for better approval odds.
Understanding loan fees
Discover hidden charges in loans before you apply.
Frequently Asked Questions
Why have loan approvals become harder in recent years?
Post-pandemic, banks tightened lending due to increased defaults. RBI regulations on unsecured lending became stricter, and banks now use AI-driven risk models that evaluate more factors beyond just salary and credit score, including job sector stability, geographic risk, and spending patterns.
What credit score do I need for loan approval in 2026?
While 700 was acceptable before, most banks now prefer 750+ for unsecured loans. Premium lenders may require 780 or higher. Your score also affects your interest rate—higher scores get better rates.
Can banks reject my loan even if I meet all eligibility criteria?
Yes. Banks have internal risk management policies and lending limits. Even if you qualify on paper, they may reject based on factors like too many loans already issued in your income bracket, geographic area, or industry sector that month.
How does my employer's industry affect loan approval?
Banks now assess industry-level risk. If your sector (like startups, real estate, or certain IT services) has seen recent layoffs or instability, you may be viewed as higher risk even if your specific job is secure.
What should I do if my loan gets rejected?
Don't apply to multiple banks immediately—this will hurt your credit score. Instead, check your credit report for errors, reduce existing debt, wait 1-2 months, and try a different lender. Consider consulting a financial advisor to understand what factors may have caused the rejection.
Conclusion
If you've been rejected recently, don't spiral. Take it as feedback, not failure.
Check your credit report. Reduce your debt load. Wait a few months. Try a different lender.
And if you're planning to apply soon, take time to understand your own eligibility first. Use online calculators. Talk to a financial advisor. Know what you're walking into before you hit submit.
Because the goal isn't just to get a loan. It's to get a loan you can comfortably repay—without it becoming a source of stress or financial strain later.
Understanding how the system works today doesn't guarantee approval. But it does give you clarity, control, and realistic expectations. And in a landscape that feels increasingly unpredictable, that's worth a lot.
Check your credit report. Reduce your debt load. Wait a few months. Try a different lender.
And if you're planning to apply soon, take time to understand your own eligibility first. Use online calculators. Talk to a financial advisor. Know what you're walking into before you hit submit.
Because the goal isn't just to get a loan. It's to get a loan you can comfortably repay—without it becoming a source of stress or financial strain later.
Understanding how the system works today doesn't guarantee approval. But it does give you clarity, control, and realistic expectations. And in a landscape that feels increasingly unpredictable, that's worth a lot.