You need a loan but keep getting denied: What now?

If you need a loan but keep getting declined, it’s important to understand why. Lenders must tell borrowers the reason why a loan application is denied, according to the Equal Credit Opportunity Act and Fair Credit Reporting Act. Those reasons provide insight into how you can improve your finances enough to earn approval for a loan later.

Figure out why you can’t get a loan

If you need a loan but keep getting denied, the first step is to understand why your applications are being declined. Personal loan applications can be rejected for a variety of reasons.

While lenders are legally required to inform consumers about adverse credit actions in writing, the receipt of these communications isn’t immediate. You may not receive notification for several weeks. If you want to find out why you were rejected earlier, contact the lender and ask them directly.

Now it’s time to look at a few of the most common reasons an aspiring borrower may be disqualified for a loan.

You might not meet the basic requirements

To qualify for a personal loan, you’ll need to meet a few basic requirements. Although some of these requirements will vary from lender to lender, most of them are common.

These requirements state that you:

• Must be 18 years of age or older
• Must be a U.S. resident
• Must be employed on a full-time or part-time basis, including self-employment
• Must have a valid checking account
• Must have no recent bankruptcy filings

If you don’t meet any of these basic qualifications, your loan application will be denied.

Your credit score may be too low

Credit score requirements for personal loans may vary depending on the lender. Most lenders,  including Rocket Loans℠, require a credit score in the 600 – 700 range. If your credit score is lower, it might be difficult to get a personal loan.

There are several steps you can take to improve your credit. You can access free weekly online credit reports from Equifax^®, Experian^®, and TransUnion^®. Reviewing these reports can help you assess your creditworthiness, understand your credit score, and find errors in the report that may be holding you back from getting a loan.

Your income may not be sufficient

One of the most important factors that lenders consider is the applicant’s ability to repay the loan. Lenders will verify your income to ensure you make enough to afford the monthly payment on the loan you’re asking for. If you try to borrow more than you can reasonably afford, a lender likely will deny you.

Your debt-to-income ratio may be too high

Expressed as a percentage, your debt-to-income ratio compares your monthly debt payment obligations to your monthly gross income. Debts such as credit cards and loans contribute to this number, whereas utility bills and groceries don’t.

Lenders consider your DTI ratio when deciding whether to approve your loan application. A DTI ratio of 35% or higher could affect your ability to secure a personal loan. If your DTI is 43% or higher, you are less likely to be approved.

There’s missing information or a mistake on your application

When applying for a personal loan, many potential borrowers forget to include the necessary documents or complete the application form incorrectly. When processing your application, the lender’s system will detect false or missing information, which can trigger an automatic denial of your loan. Additionally, you should understand that deliberately lying on a credit application is fraud, which may carry civil or criminal penalties.

Before applying for a loan, gather all the documents you may need, including tax forms, pay stubs, and identification. Always double-check your information and be sure to provide all the documents your lender asks for.

How to get a loan when you keep getting denied

Even if you’ve been denied multiple times, you may be able to get approved for a loan eventually. Once you’ve determined the likely reason for your rejection, you’ll want to work on improving your financial situation before applying again. Below are some steps you can take to increase your chances of being approved.

Improve your credit score

One of the best ways to ensure your qualification for a personal loan is to improve your credit score. Improving creditworthiness also will likely improve your chances for loan approval.

The first step you’ll want to take is to check your credit report for errors and correct them. Your credit report is available via various online resources and websites. The website AnnualCreditReport.com allows you to get a free weekly credit report from each of the three major credit bureaus. If you find any glaring errors in your credit report, you’ll want to correct them.

Once you’ve checked your reports for errors, consider how you can build or improve your credit score. You may want to:

• Request a credit limit increase: Asking your credit card company for a limit increase and then not using the card will lower your credit utilization ratio, which is a significant factor in calculating your credit score.
• Pay down your credit card debt: Paying off as much of your credit card debt as you can afford will lower your credit utilization ratio. Using a debt payoff method or talking with a financial advisor can help you prioritize and overcome credit card debt.
• Set up automatic payments: Having your payments automatically deducted from your bank account each month helps you avoid missing or late payments. Your payment history accounts for around 35% of your credit score.

Consider using a co-signer

Another option may be to ask someone to co-sign a loan with you. A co-signer agrees to be responsible for repaying the loan, even if you default. Getting a personal loan with a co-signer who has a strong credit score and a solid income can improve your application.

Your co-signer – ideally a family member or close friend – will apply alongside you, and you’ll both be responsible for repayment of the loan. Because both your credit score and your co-signer’s score are on the line if you miss a payment, it’s important to make sure any potential co-signer understands the risks involved.

Rocket Loans doesn’t currently allow co-signers on loans.

Apply for installment loans for bad credit

Not all lenders have the same requirements, and some lenders offer loans for borrowers with bad credit. These include payday loans, car title loans, or other secured loans. While one of the pros of these installment loans is that they’re easier to get approved for, they often have high interest rates – sometimes as high as 400% – and expensive fees. Make sure that you understand the cost of borrowing from a high-risk lender before applying for one of these loans.

Apply for loan prequalification

Prequalifying through a lender allows you to see if you can get a loan with less risk than a complete application. Getting prequalified typically only requires a soft credit check and provides a strong indicator of whether you’ll be approved. A prequalification also includes your tentative loan amount and interest rate. It’s important to note that a positive prequalification doesn’t guarantee loan approval.

Use collateral to secure a personal loan

If you’re not able to qualify for the loan, you might be able to explore secured personal loans. Most personal loans are unsecured, meaning they don’t require collateral and are approved primarily on your creditworthiness. If your credit score is lower than you need it to be, consider a secured loan.

Collateral is an asset of value that you agree to forfeit to the lender as compensation if you default on the loan. Providing collateral makes a secured loan easier to get because it reduces the lender’s risk – they’ll get their money back one way or another.

If your loan is declined, when can you apply again?

Depending on the reason your loan was declined, it’s you may need to wait anywhere from 30 days to 6 months before applying again. If you’ve been declined for a loan more than once, consider waiting until you understand the reason you were turned down and improve your financial situation before applying again.

When you apply for a loan, a lender will run a hard credit check on your credit history, temporarily reducing your credit score by a few points. If you’re rejected because you’ve had too many hard inquiries, which can be a red flag for lenders when evaluating your application, you should consider waiting at least 4 – 6 months before applying again.

In cases of credit report disputes, you should wait at least 30 – 45 days for corrections to be reflected in your credit report.

FAQ

It’s typical to feel a little confused if your loan application is denied. Here are some questions – followed by answers – on what to do next.

Does getting denied a loan hurt my credit?

A hard inquiry into your credit history, which most lenders make when you apply for a loan, will reduce your credit score by up to five points. Your credit report may show any hard inquiries made in the past 2 years.

Why did my loan get denied with good credit?

It’s possible to have a loan denied even if you have good credit. Your DTI ratio, income, and basic qualifications could be insufficient, or your loan application may contain errors. Contact the lender as soon as possible to better understand why your loan was declined.

What can I do if no one will give me a loan?

The best course of action is to take steps to correct whatever has been hurting your application. Although it may be tempting, avoid settling for no-credit-check financing such as payday loans, title loans, or other short-term loans. Even though these loans can finance borrowers with bad credit, they’re known for predatory lending techniques, which make them extremely risky.

How do you respond to a declined loan?

The first thing that you’ll want to do if your loan application is denied is request the reason for the denial. Lenders are required to provide a reason for any denial within 30 days. Remain calm and professional, and make sure that your credit report is error-free. Based on the reason for denial, you can then work through the issues and improve your application.

The bottom line: The reason for a loan denial influences your next steps

While rejection is never easy, it’s important to understand that it’s not permanent. Take the steps needed to improve your application, including reviewing your credit reports and correcting errors if necessary. If you continue to get denied and need money now, there are other options available as well.

Want to know if you’re prequalified? Apply online today with Rocket Loans without reducing your credit score.