Here's what to do if you are denied a loan
Here’s what to do if you are denied a loan

If you applied for a personal loan and your application was rejected, you are not alone. With inflation rising and the prospect of a recession, many Americans are struggling financially and seeking help.

Personal loan debt has increased 24% since 2021, but the number of borrowers is down from 2019. As personal loans become more popular and people accumulate more personal loan debt, many struggle to qualify. If your personal loan is rejected, there are a few things you can do to improve your credit score and chances of getting a loan.

Personal Loan Requirements

In order to get a personal loan, you must meet certain requirements. When lenders decide whether to offer you a loan and on what terms, they need to determine your creditworthiness and the likelihood that you will be able to repay the loan.

Some of the most important factors that lenders consider when reviewing personal loan applications include:

Safety. While secured personal loans are less common, they tend to be easier to obtain. The collateral for a personal loan can be any asset of value. This item is often used as collateral when you pay a loan specifically for your home or car. Guaranteed loans can be risky because if you default on your loan, you can lose your assets.
Credit Score and History. Your credit rating is the most important indicator of your creditworthiness. Credit scores range from 300 to 850. The higher your score, the more likely you are to qualify for a credit product. Your creditworthiness depends on your credit history and the reliability of your debt repayments.

debt-to-income ratio. Your debt-to-income ratio is the percentage of your monthly income that you currently use to pay off your debt. Lenders use your DTI to predict the likelihood that you will be able to repay your loan. A DTI of 36% or less is considered good, but some lenders allow DTIs as high as 50%.
income. Many lenders require borrowers to have a minimum annual income. Most lenders require at least proof of income when applying, even if they don’t have a minimum income.

Credit score range Average APR Average loan amount
720+ 9.81% $18,812.69
680-719 16.01% $15,214.76
660-679 23.54% $11,727.69
640-659 28.93% $9,470.86
620-639 35.98% $7,350.97
580-619 54.17% $5,746.62
560-579 85.24% $4,250.88
Less than 560 135.83% $2,817.03

As the table above shows, people with higher credit scores are more likely to receive the best APR and maximum loan amount from their lender. Basically, the higher your credit rating, the better your chances of getting a loan with the best conditions.


Attached files

If you are looking for a personal loan, you should prepare several documents before applying. First you need to apply for a loan. Each lender has a unique application and specific requirements may vary. Generally, you will need to provide basic personal and financial information, the amount you want to borrow and the reason for the loan. You will also need proof of identity, proof of income and proof of address.

Reasons for Personal Loan Rejection

There are several reasons why someone might reject their loan application:

Bad credit history: A bad credit history can alert creditors that you may not be able to pay your debts based on previous transactions. Your credit score is often a good indicator of your credit history, but lenders also look at your financial history to determine your creditworthiness.

High debt-to-income ratio: Your debt-to-income ratio, expressed as a percentage, is the ratio of your monthly income to your total monthly debt payments. Lenders use your DTI to determine how likely you are to repay your loan. If your DTI is 50% or more, you may have too much debt for the lender to give you new credit.
Incomplete Application: Your loan rejection can be as simple as missing paperwork. If you are denied a loan, double check that you have completed your application and submitted all required documents.
Lack of evidence of stable income: Consistency is key as it helps lenders understand your future job prospects. Since jobs can vary by industry, lenders can review tax returns for a better understanding.

Credit is not fit for purpose: Lenders may have certain restrictions on what you can and cannot do with your loan. The lender may be able to offer you alternative advice that better suits your needs.
Lenders with discontinuous employment history want to see a steady stream of income over time. If you are between jobs or have a precarious employment history, this may indicate to lenders that you may not be a reliable borrower.


What if you are rejected?

If you apply for a personal loan and get rejected, there are a few things you can do to improve your chances next time.

First, you should ask the lender why your application was denied. The Equal Credit Opportunity Act requires lenders to disclose the reason for denying your loan application if you ask within 60 days of the decision. This is called unwanted action notification. This is the key to taking action and increasing your chances of qualifying for your next loan.

The main reasons for rejection of personal loan applications are bad credit, poor credit history, unstable income and high debt-to-income ratios.

Check and build your credit score

To increase your chances of getting a personal loan, the first thing you can do is build your credit score. If you want to see your credit score without a hard credit check, use a soft credit request, which allows you to view your credit score and credit history without affecting your credit score. When viewing the report, make sure there are no errors. If you paid on time and don’t have an incorrect balance, check to see if your payment is marked on time.

Once you know your credit score and have checked your credit report, there are several things you can do to build your credit score. Pay off all debt on time and keep credit card balances low to avoid adding additional debt. You can also be an authorized user of someone else’s account. It might help if the person has a better payment history and lower usage.

Pay off other debts

Lenders typically look for DTIs below 36%, although some will allow applicants with DTIs as high as 50%. If a high debt-to-income ratio is affecting your ability to borrow, make an effort to pay off your current debt before applying for another loan.


One way is to tighten your budget and reduce your monthly credit card spending. It’s also a good idea to discuss debt consolidation with a financial advisor. Debt consolidation loans can help you reduce your monthly payments by consolidating your debts into one loan. Ideally, the interest rate on this new loan will be lower than what you paid before the merger.

Find ways to increase your income

Higher income can help lower your DTI and make you more attractive to lenders. Finding ways to supplement your income can improve your chances of getting a loan. Consider asking for a raise at work, looking for another job, or finding a part-time job. Add any household income to your full-time job when you reapply for your loan.

Compare Personal Loans

Different lenders have different requirements, prices, terms and fees. Research lenders and compare interest rates before applying to a specific lender. Which lender is best for you depends on your specific financial situation and needs. It’s a good idea to prequalify with some lenders to see exactly what you qualify for before you apply. You can get personal loans from online lenders, banks, and credit unions. Each option caters to people with different incomes, credit scores, and personal life plans.

Prepare and prequalify for your next application

Try prequalifying with some lenders. While pre-approval is not a guaranteed approval, getting pre-approval means you have met the initial requirements. Many lenders allow you to prequalify without affecting your credit score or incurring any obligations. However, pre-approval can be denied if certain circumstances change, such as B. your income or credit rating.

When you’re ready to reapply, make sure your records are up to date to reflect all the hard work and changes you’ve made. If you’re still not sure if you qualify, try finding a co-signer. This option isn’t just for people who don’t qualify – it can also give people an extra incentive to get a lower rate. However, the co-signer is responsible for any missed payments.

When to apply for a loan again after being rejected

Every time you apply for a loan or any other type of credit, the loan application will show up as a loan request on your credit report, lowering your credit score. Therefore, it is advisable to wait a while before applying again. You should wait at least 30 days before reapplying. However, experts recommend waiting six months for the best qualification.

While you wait to reapply, you should work to resolve the reason why you were denied credit. Pay off any debt, try to improve your credit score, maximize your income as much as possible, and look for lenders with looser eligibility requirements. If you’re paying off other debts during this period, make sure you get an up-to-date credit report before submitting another loan application.

Final result

While being rejected for a loan can feel like a huge blow, especially if you need quick access to cash, there’s a lot you can do to rectify the situation and improve your chances of qualifying on your next application.

If you need quick money and can handle higher interest rates, you can lend to bad credit borrowers who require more lenient. Note, however, that after being rejected, you must wait at least one month before reapplying for a loan, and you should only apply for a loan if you are confident that you will be able to pay your monthly repayments along with interest and fees. You can also try reapplying for a smaller loan amount. The lower the loan amount, the higher the likelihood of approval.

The best way to improve your chances of getting a personal loan is to reduce your existing debt and improve your credit rating and debt-to-income ratio.

So learn more:

Jake Smith

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Jake Smith

He is the editor of Eragoncred. Previously, he was editor-in-chief of Eragoncred and a financial industry reporter. Jake has spent most of his career as a Digital Media journalist and has over 10 years of experience as a writer and editor.