Table of Contents
There are several reasons why lenders may deny you a personal loan, including a lower credit score, less income than required, or incorrect information on your application. Whatever the reason, no doubt being denied a personal loan can add stress to your life if you expect money to come through.
Continue reading to understand why lenders may reject your personal loan and how to improve your approval odds in the future.
Key Points
• A lender may deny your personal loan application for a variety of reasons, including your income, credit score, and application errors.
• A lender may reject your loan application, even if you were preapproved, if you did not provide enough information.
• A cosigner may be the solution if your credit is poor.
• Making payments on time, having a mix of credit, and disputing any mistakes on your credit report are straightforward ways to build your credit score.
• Lenders may have different criteria for loan approval.
Why Was My Personal Loan Rejected?
Here are some common reasons financial institutions reject personal loan applications. Any one of these factors, or a combination, could lead to a personal loan application being denied.
• Low income: Lenders may worry about your ability to repay a loan if your income is too low. However, many lenders don’t publish their requirements, nor do they always set specific cutoffs. As a result, it can be hard to know what earnings you need to secure a personal loan.
• Variable income: If you don’t have regular income (as may be the case with entrepreneurs, freelancers, and seasonal workers), a lender might also have concerns about your ability to repay your loan.
• Unsteady work history: Lenders may feel you are not a good candidate for a personal loan if you are in and out of the job market. For instance, a person who has been steadily employed at $60,000 per year could be perceived as more credit-worthy than someone who earned $100,000 for one year, was unemployed for six months, and then employed at $65,000 for nine months.
• Low credit score: Your credit score can be one of the most important factors on a personal loan application. A poor credit score, such as one below 580, can mean you’ve had difficulty repaying your loans on time (or not paying at all) in the past, so a prospective lender may deny your personal loan application. If approved, you may wind up with a higher interest rate on your loan than someone with a stellar score. Check with the prospective lender what credit score you need for a personal loan before applying.
• High debt-to-income ratio: Your debt-to-income (DTI) ratio is the amount of debt you carry relative to your income. You can determine yours by adding up all your monthly debt payments and dividing that by your monthly income. Multiply that number by 100 to see if it is no more than 36%, which many lenders use as a qualification., The lower your number, the better.
• Incorrect application information: You may have made errors in your application, such as accidentally transposing digits in an account number. You could find this an easy fix when you reapply for your personal loan.
• Not meeting lender requirements: It’s a good idea to ensure you meet all lender requirements before you apply for a personal loan, which, at a minimum, include having U.S. citizenship or permanent residency, a government-issued ID, a Social Security number or individual taxpayer identification number, proof of income, and being at least 18 years of age.
• Requesting too much money: You may have requested more than your lender was willing to lend. Lenders consider the amount you can comfortably afford to repay based on your income and DTI.
• Incomplete application: You may get denied simply because you didn’t complete your paperwork when applying for a personal loan. If so, consider going over your application more carefully next time.
• Loan purpose not matching the lender criteria: Lenders often impose restrictions on how you use your loan. If you intend to use a personal loan as a student loan, for example, the lender may have restrictions for that and deny your loan application.
It’s worth noting that even if you’re preapproved for a personal loan, your lender might still ultimately deny you if the preapproval process did not provide them with all the information they needed to approve the loan.
Recommended: Personal Loan Guide for Beginners
What to Do After You’ve Been Rejected for a Loan
If your personal loan application has been rejected, the lender must provide you with an adverse action notice, which explains the information the lender used to make this decision. This can point you to what may have triggered the denial and help you get a personal loan in the future.
You might also contact your lender directly to find out why. If the rejection was due to an error on your application, you may be able to apply again and correct that mistake. Check with your lender about a waiting period before reapplying.
Can You Improve Your Loan Approval Chances?
If a lender has rejected your personal loan application, here are some ways to improve your odds of being approved in the future.
Finding a Cosigner
Your lender may suggest that you reapply within a short period with a cosigner. A cosigner is someone with good credit who agrees to take ownership of the loan if you can’t repay it in full yourself. Just be aware that this is a big commitment for the cosigner.
Checking Your Credit Report
Your credit report is a statement that contains information about your credit activity and reflects how well you’ve handled debt in the past. However, your credit report may contain errors about your identity or account details or debt duplication.
You can get a free annual copy of your credit report from each of the three credit bureaus at AnnualCreditReport.com, by calling 877-322-8228, or via mail at Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can dispute any mistakes and potentially build your credit score.
Building Your Credit
If your credit score wasn’t high enough to qualify for a personal loan, you may want to check your lender’s requirements and reapply when you have a better credit score. There are several ways to build your credit:
• Be meticulous about paying your bills on time.
• Don’t apply for too many loans or credit lines in a short period of time.
• Keep your DTI at no more than 36%, preferably lower.
• Maintain credit accounts in good standing. The length of your credit history counts toward building your score.
• Aim for a good credit mix. Having installment loans as well as credit cards can help build your score.
When to Reapply for a Personal Loan
How soon you can reapply for a personal loan may vary depending on your lender and why your application was rejected. Some lenders may allow you to quickly reapply if you add a cosigner, as noted above. Others may require you to wait up to 90 days before you can reapply. You may also need to wait a while to build your credit score to meet a lender’s requirements, which could take months.
Your lender can likely give you some suggestions about whether it makes sense to reapply quickly or wait a while.
Alternatives to Personal Loans
If you can’t get approved for a personal loan, here are some other funding sources to consider.
• Credit cards: Credit cards are an alternative to personal loans, but remember that if you don’t pay off your monthly balance, credit card interest rates are higher than for personal loans. That could lead to significant credit card debt. Credit cards also work differently from personal loans. What you owe is based on the amount of credit you use and the interest charged, rather than on the lump sum and interest rate of a personal loan.
• Home equity loan: A home equity loan differs from a personal loan. You use your home equity (the difference between the home’s value and what you owe on the mortgage) to secure the loan. It’s important to know that the lender can seize your home if you stop making payments. With a home equity loan, you’ll receive the money in one lump sum and pay back principal plus interest monthly over the loan’s term.
• Home equity line of credit (HELOC): A HELOC, just like a home equity loan, is secured by your home. However, it works like a credit card, allowing you to draw on your loan as much as you want through a withdrawal period. After that period, a HELOC enters the repayment phase.
• Cash-out refinance: A cash-out refinance is a type of mortgage refinance that allows you to borrow more than you currently owe. You can take that difference in cash. Again, as with a home equity loan or HELOC, your property will serve as collateral. If you can’t make the payments, you could lose your home.
• Peer-to-peer loan: These loans bypass traditional lenders. They’re also known as “crowdfunding loans” or “social lending loans.” They differ from financial institution loans in that multiple investors fund them. Peer-to-peer loans may offer an alternative to individuals who can’t get loans from traditional lenders. Some peer-to-peer lenders include Prosper and Upstart.
Remember to shop around and compare interest rates and repayment terms before you make a decision.
Recommended: Personal Loan Calculator
The Takeaway
If you’re denied a personal loan, it could be due to a low or variable income, your credit score, or other factors. Consider whether reapplying or finding an alternate source of funding is the best fit for your finances.
Shopping for a personal loan? See what SoFi offers.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
Why do I keep getting denied for a small loan?
The reasons for a personal loan denial can vary and may include having a low income or a poor credit score. However, you can gain insight about why your application was not approved and then work to secure funding in the future. Lenders could be wary if you often apply for various forms of credit.
How can I get a loan when I can’t get approved?
If you’ve been turned down for a personal loan, you might be able to bring on a cosigner and get approved. Another alternative is to wait and apply for a personal loan with a stronger application package. You can also seek a different form of funding, such as a home equity or a peer-to-peer loan.
How hard is it to get a $30,000 personal loan?
You may qualify for a $30,000 personal loan if you meet the requirements. These often include having a credit score of at least 580 to qualify and above 740 for more favorable terms.
Photo credit: iStock/Milan Markovic
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOPL-Q126-051