You Need A Loan But Keep Getting Declined: What Next?

Personal loans are a great option for many people in need of temporary financial assistance. For various reasons, however, some hopeful applicants will be denied a loan multiple times. If this happens to you, know you’re not alone.

Fortunately, if you need a loan but keep getting declined for one, you’ll find strategies that – if executed properly – can give you a better chance of loan approval in the future.

Let’s explore why you may be continually denied a loan but what you can do to boost your next application.

Potential Reasons Why You Can’t Get A Loan

If you need a loan but keep getting denied, the first step you’ll need to take is to determine the reason why your loan application was declined. Personal loan applications can be declined for a variety of reasons.

To find out why you were rejected, consider calling the lender to ask them directly or review the adverse action notice you received upon or after denial. If the lender is unable to provide you with a specific reason for denial, you’ll need to do a little more research into your financial situation.

Now it’s time to take a 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 fairly 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 bankruptcies filed against you

Your Credit Score May Be Too Low

Credit score requirements for personal loans may also vary depending on the lender, but most lenders will want to see a credit score that falls at least within the range of 600 – 700. If your credit score falls below this threshold, it might be tougher for you to get approved for a personal loan.

Your Income May Not Be Sufficient Enough

One of the most important factors that lenders consider when deciding whether to approve someone for a loan is the person’s ability to repay the loan they’re seeking. Lenders will want to review your income to ensure you make enough money to afford the monthly payments. If you try to borrow more than you can reasonably afford, a lender will likely deny you.

Your Debt-To-Income Ratio May Be Too High

Expressed as a percentage, your debt-to-income ratio (DTI) 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 living expenses such as groceries don’t.

A DTI of around 36% or higher could impact your ability to secure a personal loan. If your DTI reaches 43% or higher, your chances of approval are even less likely.

You Could Have Missing Information Or A Mistake On Your Application

When applying for a personal loan, many potential borrowers make the mistake of forgetting to include the necessary documents or filling out something incorrectly on their application. When processing your application, the lender’s system will detect false or missing information that can trigger an automatic denial of your loan.

Always double-check your information when applying for a loan and be sure to provide all paperwork that the lender has asked for.

How To Get A Loan When You Keep Getting Denied

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. The first step you’ll want to take is to check your credit report to verify it has no errors. It’s possible to obtain your credit report through various online resources and websites, but your best option is AnnualCreditReport.com where you can get a free weekly credit report from each of the three major credit bureaus all in one place. If you find any glaring errors in your credit report, you’ll want to dispute them with the appropriate bureau.

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 (a big factor in your credit score).
• Pay down your credit card debt: Paying off as much of your credit card debt as you can afford to pay will lower your credit utilization. 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 will help you avoid missing or making late payments.

Taking steps to repair your credit score can also help lower your DTI, increasing your odds of loan approval.

Ask Someone To Co-Sign

If your financial situation isn’t sufficient for loan approval, another option may be to ask someone to co-sign a loan with you. Getting a personal loan with a co-signer that has a strong credit score and a solid income can boost 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.

Please note that Rocket Loans℠ doesn’t currently offer the option to co-sign on loans.

Compare Lenders

Lending requirements aren’t the same across all lenders, so it’s often worth comparing multiple lenders to see if you may be loan eligible somewhere else.

Using a broker or lending comparison website might increase your chances of finding a lender that will approve you for a loan. With these services, your loan request goes to several lenders at the same time. This doesn’t damage your credit in any way, and it can provide you with more options.

If you’re still struggling to qualify through a traditional lender, consider working with your local credit union. Credit unions are often more flexible in their requirements and are willing to work with you to evaluate your financial situation.

Use Collateral To Secure The Loan

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, you could consider a secured loan.

The inclusion of collateral makes secured loans easier to get approved for, as it assures the lender they’ll get their money back one way or another – even if you default on the loan. After enough missed payments, your lender can take permanent possession of the collateral asset you’ve offered up.

Prequalify For A Personal Loan

Prequalifying through a lender can also be a beneficial strategy. Getting prequalified typically only requires a soft credit check and can provide you with 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 although a positive response may come from your prequalification letter, this doesn’t guarantee you’ll be approved for a loan.

If Your Loan Is Declined, When Can You Apply Again?

Depending on the reason your loan was declined, it’s possible you’ll need to wait anywhere from 30 days to 6 months before applying again. If you’ve been declined for a loan multiple times, you should consider not applying again until you understand the reason you were turned away and you’ve explored options that can improve your financial situation.

When you apply for a loan, a lender will run a hard credit check on your credit history, temporarily lowering your credit score by a few points. If you’re rejected because you’ve had too many hard inquiries – which can also 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.

FAQs On Getting Denied For A Loan

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 impact 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. As mentioned, your DTI, income and basic qualifications could be insufficient, or your loan application might have a mistake on it. 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.

Final Thoughts

Rejection is never easy, but it’s not always the end of the road. When you need a loan but keep getting declined for one, don’t give up. Work with your lender or financial advisor to discuss your options for improving your chances of being approved the next time you apply for a loan.

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