Have you ever found yourself in a situation where you’ve needed some extra cash, applied for a personal loan online, and had your personal loan application rejected? Maybe you’re left scratching your head, wondering what was wrong with your application, and if there’s anything you could do differently moving forward to try to get a loan online. Ultimately, whether your application for a personal loan is rejected or approved, no personal intent went into this decision. Every lender will have its own requirements when it comes to approving loan applications. If, for whatever reason, you don’t meet the qualifications that they’ve laid out, there’s a good chance that your personal loan application will be declined. If this happens, it’s a good idea to explore why this may have been the case, and look at some things that you can do that may help to impact your chances of being approved in the future.
Why was I Declined for a Personal Loan?Like we mentioned, any time you apply for a personal loan, aspects of your financial profile will be evaluated with the goal of determining what kind of borrower you’ll end up being. Ultimately, financial institutions will want to know that you’ll be able to repay what you’ve borrowed in a timely manner. Understanding what factors they evaluate to help them determine this can give you some hints as to why your application for a personal loan was declined. So, here are four common reasons why personal loan applications may get rejected.
1. You Have a Low Credit ScoreOne of the first (and often most important) things that a financial institution may evaluate is your credit score. The purpose of it is to distill your borrowing history into a three-digit number to give online direct lenders some idea of what type of borrower you’ve been in the past. In many situations, a lender may have assigned minimum credit score threshold for particular products that they service or offer, and if you apply for that loan with a credit score that’s below their minimum requirement, there’s a good chance that you’ll be declined for a personal loan. So, with that in mind, before you start to apply for any personal loans, you should be sure to check your credit score to have an idea of what you may or may not qualify for.
2. You’re Carrying Too Much Debt Based on your IncomeWhen you’re carrying debt at the time that you submit a loan application, a financial institution evaluating your financial profile is likely going to consider this. While the amount of debt that’s considered to be “too much” may be subjective, they’ll typically make this call based on how much debt you’re carrying relative to your income. So, for example, if you’re carrying a few thousand dollars of debt and your income is relatively low, they may decide to reject your personal loan application.
3. Your Income is Too Low or InconsistentPiggybacking off the last point, your income is going to be another thing that gets evaluated, irrespective of the amount of debt you’re carrying. Their aim will be to ensure that you have enough cash coming in regularly to pay off what you’ll owe if your personal loan application is approved. So, if you don’t make enough money relative to what you’re asking for, your application could be denied. On top of this, they may also consider how consistent your income is. While you may make around the same amount every month if you average things out over a longer period of time, if this income isn’t consistent, this may affect your application.
4. You Didn’t Meet Certain Logistical RequirementsOn top of the financial aspects of your profile, there are going to be certain logistical requirements that you’ll need to meet. For example, in a lot of cases, a financial institution will only service certain states. So, if you’re not a resident of any of the states that they service, your loan application will be denied. The same goes if you’re under the age of majority in the state you live in. We should also mention that you’ll want to ensure that you haven’t skipped over any sections of your personal loan application. If you don’t paint a full picture for them, you could run into issues.
What Should I do if My Personal Loan Application is Denied?If your application for a loan doesn’t get approved, there may be a few things you can do to potentially impact your chances down the line. Here are some important things to consider.
1. Take Steps to Remedy your ProblemsHow you go about improving your situation is going to have to be somewhat specific to why you’re in the position you’re in. For example, if you’re carrying a lot of debt, you might want to look at ways to start systematically paying it off. If you find that your income is too low to get approved for the amount that you’re asking for, you can try to lower that amount. You can also consider looking for a secured loan to apply for. The difference between this and an unsecured loan is that you’ll need to provide collateral to qualify for a secured loan. Keep in mind that you risk losing a valuable asset if you don’t meet the stipulations of your loan agreement, so make sure that you’re certain that you’ll be able to repay your loan on time. If your problem doesn’t have anything to do with your income or debt situation, but instead lies more in the direction of your low credit score, the process of moving the needle in the right direction is going to require time and patience. To start, you’ll want to get a copy of your credit report from one of the three major credit bureaus (Experian, Equifax, and TransUnion). From there, you should do a thorough review to find any errors that could be negatively impacting your score. If you find any, you should take the steps to get those removed immediately. From there, you’ll want to make sure that you start to incorporate more healthy financial habits into your life to hopefully impact your credit history. This could be things like:
- Paying off your debt
- Finding ways to raise your overall income
- Ensuring you pay your bills on time
- Using less credit