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I Was Rejected for a Personal Loan – What Now?

Being Declined for a Personal Loan Doesn’t Feel Good  


It doesn’t have to be final though.  Here we talk about why personal loans are sometimes rejected, what you should do if your loan has been declined and how to successfully obtain a personal loan.

What to do When Rejected for a Personal Loan

Ask the Lender Why.  Lenders must disclose their reason for rejecting your loan so be sure to ask.  Pay attention to the reason. If it’s due to a low credit score or income to debt ratio, put a plan in place to improve so that you can meet the lender’s requirements.


Obtain a Loan from Friends & Family.  If you have good relationships and don’t have a track record of asking for money and not paying it back, friends or family may be the best option.  Your interest rate will typically be much lower than a bank’s and with more favorable repayment terms. Boost your chances of a family member agreeing to your loan request by offering up collateral.  Learn more about how to request a personal loan from friends and family.


Get a Credit-Builder Loan.  Also known as “Starting Over Loans” or “Fresh Start Loans” Credit Builder Loans provide a borrower the ability to improve their credit score with a lender’s help.  Credit Builder Loans provide a deposit of money that the bank holds on to while the borrower makes monthly payments towards it. Once the “loan” is paid off, the money is given to the borrower.  This method has the impact of improving the borrower’s credit score assuming they make all of their payments on time. It is especially helpful for people who are attempting to repair a poor credit history, including bankruptcy, or younger borrowers who are establishing credit.

Top Reasons for Personal Loan Rejection

The Reason for Your Loan.  Banks will want to know what you need the loan for and may reject a request outright if it doesn’t fit within their guidelines.  Some loan types are not considered personal (such as business loans or some student loans) so check with your lender before applying.  They may be able to direct you down a better path.


Poor Credit Score.  Personal loans that are security free (no collateral required) require a higher credit score.  Many lenders require that you have a FICO score of 670 or greater. If your FICO is less than that, you run the risk of a higher interest rate or being rejected for the loan altogether.  Here are the top options for bad credit loans.  


Lack of Collateral.  Many lenders prefer, or even require, that the personal loan be secured by an asset such as property or other source of liquid funds.  If you are unable to provide collateral to back your loan, you have a greater likelihood of rejection. Learn the ins and outs of collateral for personal loans.


Low Monthly Income. Lenders want to be sure you can afford to repay the loan.  If your monthly income can not cover loan repayment as well as all your other obligations, you will not be eligible for the loan.  Some lenders have basic minimum income requirements so check first before applying. If you are including child support payments as income, this typically will not be accepted as income by the lender.  Same goes for benefits income.


Existing Loan Balances.  If you have other loan obligations that result in a high proportion of debt to income, obtaining a personal loan will be difficult. A good rule of thumb is to have a Debt-To-Income ratio (DTI) of no more than than 20%.  Anything higher reduces your chance of personal loan approval. It is best to pay down debt as quickly as possible and not have too many loans or revolving debt accounts outstanding. Your situation is even more impacted if your other loans are unsecured versus secured. 


Your Job.  Are you self-employed?  This can increase your chances of being rejected for a personal loan unless you can prove a consistent track record of income meeting the lender’s requirements.  If you are employed by a company, your occupation as well as the longevity you have had with them plays a factor. Job hopping is a negative! Lenders prefer borrowers who have been with their employer for two years or more.  Working for a reputable larger versus a smaller company is also helpful.


Application Errors.  It happens. We forget to fill out all questions or fat-finger our social security number when typing in the online form.  Before submitting your application, always be sure to read through every question to make sure that you have answered it completely and correctly.

Get a Co-Signer.  Having a backup co-signer that has a strong FICO score and income level can significantly increase your chances of being approved for a loan with good terms.  Just remember, though, that the co-signer is equally responsible for the loan so be sure to make all your payments on time so as to not ruin an otherwise healthy relationship!


Improve Your Credit Score.  Credit scores are the biggest reasons for personal loan rejection so focus on this first.  It will only help you in the long run!  

Happy Couple Loan Approval
  • First, obtain your credit score report and make sure that there are no errors  
  • If you consistently make late payments, create a calendar for yourself with reminders so that you always pay on time.  Loan candidates who consistently pay late are a no-go for lenders
  • Improve your debt to credit line ratio.  If you are utilizing more than 20% of your available credit (look at your credit cards!) banks will look at you less favorably.  Work towards paying down your debt to get under the 20% mark. Under 10% is that much better.


Increase Your Income.  Asking for and getting a raise, selling more if you are on a commission plan, finding a new job that pays more or even getting a second job are all ways to increase your income in order to more rapidly pay down your existing debts but also improve your income to debt ratio.  

Improve Your Chances of Getting a Personal Loan

Ask for the Right Amount.  Don’t ask for more than you need.  Be realistic with yourself and responsible with your wallet.  If you set a budget for $5,000, stick with it. Don’t succumb to obtaining a larger loan to make an additional purchase you don’t need.  Be responsible with your request, responsible paying back the loan on time (or even early) and you will become a strong candidate for the next loan when needed.


Research Lenders. Many lenders post their personal loan requirements online.  This will allow you to check minimum FICO score requirements and minimum income and DTI (debt-to-income) ratios.  Many websites will also show you comparisons across lenders taking some of the guesswork out of it. This will also help you avoid trapping yourself into a personal loan with a very high interest rate.


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