What To Do If You Are Denied A Loan | Bankrate (2024)

Key takeaways

  • Lenders tend to tighten credit requirements during tough economic times, making it harder to get approved for credit products, including loans.
  • Credit score, income and debt-to-income ratio are the main factors lenders consider when reviewing applications.
  • Paying down debts, increasing your income, applying with a co-signer or co-borrower and looking for lenders that specialize in loans within your credit band could increase your approval odds.

If you recently applied for a personal loan and got denied you’re not alone. Bankrate’s credit denials survey found that half of Americans who’ve applied for a loan or another financial product since the Fed hiked its benchmark rate in March 2022, have gotten denied.

This is likely in part due to the fact that lenders tend to tighten their credit requirements during tough economic times to mitigate risks, which in turn makes it harder to get approved for a loan. Luckily, there are a few steps you can take to improve your approval odds, even in a tough economy.

Credit denial statistics

  • 50% of Americans who have applied for credit products since the Fed rate hikes in March 2022 have gotten denied, according to Bankrate’s Credit Denials survey.
  • 17% were denied more than one loan or financial product.
  • 21% of Americans say it has gotten harder to access credit since the Fed increased interest rates, with 11% saying it has gotten much harder.
  • New credit card applications, including balance transfer cards, accounted for the majority of credit denials at 19%.
  • Credit card limit increase denials (at 11%) came in second, followed by personal loans (at 10%).

Why it’s been harder to get approved for a loan

Borrowers with good to excellent credit are still most likely to get approved for a loan, although the APRs (annual percentage rates) offered are likely to be much higher than they would have been last year.

The cost of borrowing has greatly increased as lenders adjust to the Federal Reserve raising the benchmark rate. What’s more, lenders have also become more selective about who qualifies for approval as the inflation rate remains stubbornly high, despite the Fed’s recent behaviors.

Reasons for personal loan rejections

There are several reasons someone may have their loan application rejected:

  • Bad credit history: Bad credit history may indicate to creditors that you are having or had trouble repaying what you owe based on past transactions. Although your credit score is generally a good indicator of credit history, lenders also look at your overall financial history to establish your creditworthiness.
  • High DTI: If you have a DTI — or debt-to-income — ratio of 50 percent or higher, you might have too much debt for a lender to give you a new loan. If that’s the case, it’s best to apply after reducing your overall debt, as this will increase your chances of approval.
  • Incomplete application: Your loan rejection could be as simple as missing a key field or document needed for verification. If you are rejected for a loan, double-check that you fully completed the application and submitted all the proper documentation.
  • Lack of proof of steady income: Consistency is key because it helps lenders understand your job landscape moving forward. Because jobs can vary depending on the line of work, lenders may look at tax returns to get a better overview.
  • Loan doesn’t fit the purpose: Lenders might have certain restrictions on what you can and can’t do with loan money. The lender may be able to offer you alternative suggestions to better fit your needs.
  • Unsteady employment history: Lenders like to see a steady income stream over time. If you are between jobs or have a history of unsteady employment, this could indicate to lenders that you may not be a reliable borrower.

How to improve your chances of qualifying for a loan

There are a few measures you can take to improve your approval odds when applying for a personal loan. But for any of these steps to work you must know why you got denied in the first place.

Under the Equal Credit Opportunity Act, lenders must disclose the reason for denying your loan application as long as you inquire about it within 60 days of the decision. This is known as an adverse action notice. Knowing this information is key to developing an effective strategy to get approved next time.

  • Your credit score is the single most important factor when qualifying for a loan. It also goes into determining how much you’ll pay in interest. As a rule, the higher your credit score is, the more likely you are to receive favorable APRs and low fees.

    If you aren’t sure whether your credit score is in mint condition, the best thing you can do is review a copy of your credit report. You can request a free copy of your report from all three bureaus every week by visiting AnnualCreditReport.com. Although this won’t show you your actual score, it will give you an idea of where you stand with creditors, as well as if there are mistakes that need to be corrected.

    Aside from that, make all debt payments on time and keep your credit card balances low to avoid piling on extra debt. Both are simple ways to nurse your credit back to a healthy state. You can also become an authorized user on someone else’s account. However, this will only boost your score if the person has a good payment history and a low credit utilization rate.

  • Lenders typically look for a DTI under 36 percent, although some allow applicants with DTIs as high as 50 percent. If a high debt-to-income ratio affects your ability to take out a loan, work on paying down your current debts before applying for more credit.

    One way to do that is to tighten your budget and cut down on monthly credit card expenses. If you have different types of debt (credit cards, loans, etc.) you can try using the snowball or the avalanche payoff strategy.

    The snowball strategy consists of paying off your smallest debt — regardless of the interest rate — and moving up from there. The avalanche method focuses on paying off the account with the highest interest first — regardless of the balance — and working down from there.

  • A higher income can help lower your DTI and make you more attractive to lenders. Finding ways to supplement your income could improve your chances of qualifying for a loan. Consider asking for a raise at your current job, especially if you haven’t received one in a while.

    Another option is to take on a side gig. Bankrate’s side hustle survey found that 39 percent of U.S. adults have a side hustle, out of which, 33 percent use it to pay for regular living expenses. Some viable options that don’t require a lot of time commitment if you already have a full-time job include tutoring, dog walking and online sales.

  • Various lenders have different requirements, rates, terms and fees. Research lenders and compare rates before applying to one. The lender that will work best for you depends on your specific financial situation and needs.

    Prequalifying with a few lenders is a good idea to see exactly what you will be eligible for before fully applying. You can get a personal loan from online lenders, banks and credit unions. Each option caters to people with different incomes, credit scores and personal life schedules.

  • Although prequalifying is not guaranteed approval, getting a prequalified offer means you met the initial requirements. Many lenders allow you to prequalify without affecting your credit score or making a commitment. However, your application could be denied if something changes, such as your income or credit score.

    When you are ready to fully apply, ensure that your documentation is up to date to reflect all the hard work and changes you made. If you are still unsure if you will qualify, try finding a co-signer.

When to apply for a loan again after denial

Each time you apply for a loan or credit product there is a hard inquiry that can temporarily lower your score. That’s why it’s a good idea to wait at least 30 days before you apply again. However, if you don’t need the funds urgently, experts recommend waiting at least six months.

How to get a loan with bad credit

There are a few ways you could still get approved for a personal loan, even with less-than-perfect credit.

Add a co-borrower or co-signer

Co-borrowers and co-signers are typically creditworthy family members or friends who sign the loan agreement with the primary applicant and take on equal legal responsibility for the loan. This, in turn, can boost the chances of approval of the primary applicant, plus help them secure a better rate.

The main difference between the two is that the co-borrower has access to the loan funds, while the co-signer doesn’t. Both co-borrowers and co-signers are equally responsible for payments, but co-signers typically only make payments if the borrower is at risk of defaulting on the loan.

Consider the potential relational risks before enlisting the assistance of a co-borrower or co-signer. Also make sure the monthly payment is well within your budget, both now and in the future, to avoid negatively impacting their credit as well as yours.

Consider getting a secured loan

Secured loans are those that are backed by an asset, such as a car or a savings account. Though not many, some personal loan lenders do offer these products. If you have enough equity built in your home, you may also be able to apply for a home equity loan or a home equity line of credit (HELOC). Both are second mortgages backed by your home.

Because secured loans are guaranteed by an asset, lenders tend to be more lenient with credit requirements and offer lower rates. That said, if you default on the loan, the lender could take legal action to seize the asset. Additionally, home equity loans and HELOCs usually entail a lengthy approval process and are best suited if you need a considerable amount. Otherwise, they may not be worth the trouble or risk.

Target your search toward lenders within your credit band

If you need money quickly there are loans for bad credit borrowers that tend to have more relaxed requirements. However, be aware that your interest rates may potentially be higher than if you qualified for a good credit loan. Regardless, if you can handle the higher payments and interest, without tilting your budget, it may be a good option to explore.

The bottom line

If you have been denied a loan, take the time to review your application and see what went wrong. Then, work on improving the aspects that got you denied in the first place. For instance, if the main issue is that your DTI is too high, consider paying down debt before reapplying.

But if you’re in a crunch, there are lenders that offer loans to those with bad credit. But be sure to carefully consider the interest rates and your ability to make payments before you apply. It’s also important to wait at least one month before reapplying after getting denied and to only borrow an amount that you can comfortably repay.

What To Do If You Are Denied A Loan | Bankrate (2024)

FAQs

What To Do If You Are Denied A Loan | Bankrate? ›

The bottom line. If you have been denied a loan, take the time to review your application and see what went wrong. Then, work on improving the aspects that got you denied in the first place. For instance, if the main issue is that your DTI is too high, consider paying down debt before reapplying.

How do you respond to a declined loan? ›

Under the Equal Credit Opportunity Act, you have the right to ask your lender why it rejected your application, as long as you ask within 60 days. After you request an explanation, the lender must provide you with a specific reason for your denial. You can use the information it gives you to help fix any issues.

How can I get a loan if I keep getting denied? ›

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.

How to get a loan when no one will approve you? ›

Alternatives to Credit Check Online Loans

No-credit-check loan options like pawning something or getting a cash advance don't require a credit score at all. Also, they can be a way to get the cash you need if you're having trouble finding loan approval.

What should you do if your lender rejects your loan? ›

You should request an explanation from your lender as to why your application was denied. The lender is required to provide you this explanation in writing if you request it, and must to give you copies of the credit score upon which the denial was based. Don't be discouraged. Another lender may approve you for a loan.

How do you respond to being declined? ›

In addition to thanking the other person for their time and expressing gratitude for the opportunity, you should do two things: State your interest in being considered for future opportunities, and ask for feedback on how you can improve.

How hard is it to get a $30,000 personal loan? ›

In general, lenders extend $30,000 loans to borrowers with good to excellent credit, which is typically 670 and higher. But there may be lenders who lend to borrowers with bad credit. If you're having difficulty qualifying, you may consider getting a cosigner or co-borrower to help you get approved for the loan.

How do I get a loan when I keep getting declined? ›

Applying to a direct lender with a more modern outlook could help you to get accepted even if your recent credit applications have been declined. This is where a reputable online credit broker can really come in handy since they can make it easier to find lenders who are more likely to approve your loan application.

Is it bad if I get rejected for a loan? ›

So being rejected for that loan can be both disappointing and financially impactful. With that said, it's important to use loan denials as an opportunity to assess and improve your financial profile. Find out exactly why you were rejected and spend some time analyzing the lender's reason for doing so.

Can you have a 700 credit score and still get denied? ›

According to the FICO® scale, a good credit score falls between 670 and 739. However, having a score in that range or above doesn't guarantee approval on credit applications.

Which bank gives a loan easily? ›

HDFC Bank offers pre-approved loans to customers in 10 seconds flat*. Non – HDFC Bank customers can get loans in 4 hours. If you've wondered how to get an instant loan, wonder no more.

What's the easiest loan to get approved for? ›

What is the easiest loan to get approved for? The easiest types of loans to get approved for don't require a credit check and include payday loans, car title loans and pawnshop loans — but they're also highly predatory due to outrageously high interest rates and fees.

Why is nobody giving me a loan? ›

You tried to borrow too much money

After looking at your financials, your lender will determine the maximum amount they're willing to allow you to borrow. This figure is typically based on how much you can comfortably afford to repay each month when taking your current income level and debt obligations into account.

How to get a loan when everyone denies you? ›

Paying down debts, increasing your income, applying with a co-signer or co-borrower and looking for lenders that specialize in loans within your credit band could increase your approval odds.

What is the major reason the lender denied the loan? ›

Key Takeaways. One common reason you would be declined for a personal loan is a poor credit history. Income and the amount of debt you already have can also be reasons a lender may reject your loan application.

How long should I wait to apply for a loan after being declined? ›

How long should you wait before applying for another loan? Generally speaking, it's best to leave at least three months between loan applications – six months would be even better if you can manage it.

How do you respond to a declined offer? ›

How to respond to a job rejection letter
  1. Thank the hiring manager for letting you know their decision.
  2. Express your gratitude for their time and consideration. You can directly mention contact you've had with them, like a phone or in-person interview .
  3. Tell them you appreciate the opportunity to learn about the company.

How do you respond to a funding rejection? ›

Write a Fundraising Plan in 2 Simple Steps!
  1. Don't take it personally. ...
  2. Call the funder to see if they can offer any insights on why the proposal was not funded.
  3. Request a copy of the reviewer's comments.
  4. Ask if you can resubmit in the next funding cycle and how you can strengthen your proposal.

How do you respond to a denied request? ›

How to respond to a rejection email
  1. Address the recipient by name. At the start of your response letter, address the recipient by name. ...
  2. Thank them for their time. ...
  3. Communicate your disappointment. ...
  4. Express your ongoing interest. ...
  5. Request feedback. ...
  6. Close the letter politely. ...
  7. Proofread your letter.
May 3, 2023

What happens if a loan application is declined? ›

The Bottom Line. Getting denied for a loan or credit card will not be recorded on your credit report, and it will not directly impact your credit scores. To improve the chances that you'll be approved for credit, you may want to take a look at your credit before you apply, and take steps to improve it if you need to.

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