Being denied a personal loan is irritating and sad, especially if there is a financial emergency and you need money right now. Whether you were trying to get a loan directly from a bank or used a more convenient service like GetCash, there could be several reasons for your application getting rejected and several things you might do to fix it.
Common reasons for getting your application rejected
Low credit score
Your credit score and thus your credit history is the first thing considered by any lender before they decide whether to approve your loan application or reject it. If you used to miss payments in the past or had credit issues like bankruptcy or collections, you might have fewer chances to get a loan now.
Unstable or insufficient work history
When considering your loan application, lenders want to know whether you have had consistent income for the last months or even years. If you did, it most likely means that you’re going to keep it in the future. So if you recently changed several jobs or work as a freelancer for several employers at the same time, it might be a reason for your loan application to get rejected.
High debt-to-income ratio
Debt-to-income ratio, usually known as simply DTI, is your total debt amount divided by your monthly income. You can easily calculate it yourself. You need to sum up all your debts, including credit cards and student loans, and divide them by your monthly salary. If the ratio is lower than 40%, you can consider your DTI healthy. If it’s higher — it might decrease your chances of getting loan approval. It might be the case even if you’ve never missed a single payment and have a steady income and a decent credit score.
Income below the threshold
In most cases, lenders tend to have a minimum income requirement that you have to meet in order for your loan request to get approved. The income requirement varies depending on the lender and the requested loan amount. To avoid your application getting rejected, don’t forget to mention all the sources of income you might have, including child support payments, investment accounts, side jobs, etc.
Missing information
Sometimes, the reason for a rejected loan is as simple as that. Some information or paperwork might be missing, or there is an error in your application. While some lenders might not bat an eye at it, others will reject your request without a second thought.
Things to do if your loan application is rejected
The first thing to remember is getting your application rejected is not the end of the world. You can always try again, but first, take a look at our tips — they might increase your chances of approval.
Learn why your application was rejected
You’ll get a rejection notice with the exact reason in most cases. Reviewing it is the first thing to do as it can quickly clear up the situation and help you understand your next steps.
Improve your credit score
If the reason is a low credit score, there are several ways to improve it. It’s easy if you are simply lacking a credit history. In that case, you can get yourself a credit card or sign onto your parent’s or spouse’s account, provided their credit score is better. If the problem lies in missed payments, a high DTI ratio, or too many recent loan applications, it might take some time and money to improve the situation and thus your credit score.
Apply for a smaller amount
There might be a point in requesting a smaller loan. Such loans are considered less risky and have higher chances of being approved. Besides, smaller loans are easier to pay off, so starting low might be a good idea. Paying such a loan on time will improve your credit rate and history and will allow you to apply for a bigger loan next time.
Get a co-signer
Some lenders allow you to cosign a loan with another person who has a better credit score or a higher income. It can help you get a bigger loan if your income is insufficient for a lender to be convinced. Please remember that a co-borrower will have to repay the loan if you fail to and that such loans might have additional terms to take into account.
Try other lenders
It doesn’t hurt to shop around. If one lender rejected your application, there’s no guarantee that the next one will do that. Try different banks or lending companies, compare their offers, and find the one you can negotiate.
Author’s bio:
John is a financial analyst but also a man of different interests. He enjoys writing about money and giving financial tips, but he can also dive into relationships, sports, gaming, and other topics. Lives in New York with his wife and a cat.
