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What to do if Your Personal Loan Application is Rejected

December 9, 2022 by Daniel Azzoli

Person signing a loan application.

If you’ve ever been in a position where you felt like you needed a personal loan, applied for one, and then were rejected, you may have been left sitting there, trying to figure out what went wrong. Having said that, it’s important to remember that if your application for a personal loan is declined, this decision wasn’t made with any personal intent.

Every financial institution has set clear parameters to dictate who they’ll lend to and who they won’t. If you don’t meet their criteria, there’s a chance that your personal loan application will be rejected. So, with this is mind, let’s explore some of the reasons why personal loan applications may get rejected and then look at some of the steps you can follow if this happens to you.

Why was my Personal Loan Declined?

When you submit a personal loan application, a financial institution is going to go through a series of steps to determine what type of borrower you’re likely to be, and whether they think you’ll have the means to repay your loan. If you’ve never applied for a loan or you don’t know much about the process, here are some of the common reasons why some people get declined for a personal loan.

1. Your Credit Score is Too Low

Your credit score is often one of the most important factors when it comes to personal loan approval. Its job is to summarize your history as a borrower to give lenders a sense of your creditworthiness. In a lot of cases, a financial institution will have a specific minimum threshold that they’ll be looking for when it comes to your credit score, and if you don’t meet it, you might be declined for a personal loan. Before applying for a loan, it’s a good idea to check your credit score by buying it from a major credit bureau or using a free service online.

2. You Have Too Much Debt Relative to your Income

If you have a large amount of debt that you still need to pay off, a financial institution will factor this in when considering your personal loan application. For example, if you have $3,000 of outstanding debt on a line of credit and you still need to make five more payments on an installment loan, a lender evaluating your latest loan application may not think you have the financial means to add more debt onto your plate. For this reason, you may get declined for a personal loan.

3. You Don’t Bring in Enough Income

This might seem obvious, but a financial institution is going to want to check your income to make sure you’re bringing in enough money on a regular basis to pay off the personal loan you’ve applied for. If your paycheck is too small, you might be declined depending on the size of the loan you’re applying for.

Piggy bank in front of white background.

Another thing that may factor in is the consistency of your income. You may make a certain amount of money over the course of a month or year, but if your income is inconsistent, that may also play a part in your ability to get approved.

4. You Didn’t Meet Various Other Requirements

On top of some of the financial requirements for approval, a financial institution is likely going to have certain other things that they look for. For example, some lenders may only operate in certain states, so if you submit a personal loan application and don’t live in the state that they service, you’ll almost certainly get rejected. They’ll also likely have a minimum threshold for your age.

On top of this, you’ll want to make sure you fill out a personal loan application in its entirety. So, if you leave out important information like your income, your assets, or certain personal identification information, this could be a problem.

What Should I do if I’m Rejected for a Personal Loan?

If you apply for a loan and your application is rejected, there are a few steps you’re going to want to take to improve your chances in the future. Here are three important things to do moving forward.

1. Understand Why you Were Rejected

The first and most obvious thing for you to do if your application for a personal loan is rejected would be to determine why this happened in the first place. Start by reaching out to the financial institution to see if they can shed some light on the reasons for the rejection. If they aren’t able to give you any insights, consider some of the rejection reasons we went over earlier and use that information to try to figure out why you were rejected on your own.

2. Address your Issues

Once you’ve been able to identify the problem, you can start to try to fix it. Now, this can be a lot easier said than done. If it’s a simple matter of making sure you fill out the personal loan application in its entirety, you can likely resubmit it fairly quickly, making sure to be thorough this time.

If your issues stem from something else, the way you go about regulating your issue is going to have to be somewhat specific to your situation. Some general things you might consider are to start by lowering the asking amount. If the lender feels like your income is too low or that you’re carrying too much debt, try requesting a lower amount, assuming that the lower amount still satisfies your needs.

Personal applying for a personal loan over the phone.

Another thing to consider would be to look for a secured loan instead of an unsecured loan. You’ll need to offer collateral in order to be approved, but this may be enough for you to get approved. Just keep in mind that in this situation, you’re putting a valuable asset at risk, so you’ll need to be absolutely certain that you’ll be able to repay your loan.

If your issues run a little deeper, like if your credit score was too low, the process of improving your situation is going to take time and patience. You’ll want to start by requesting a copy of your credit report – which you can do for free every year with each of the three major credit bureaus (Equifax, Experian, and TransUnion) – and doing a thorough review to try to spot any errors that may be hurting your score. If you end up finding any, immediately report this to the credit reporting agency and have these errors removed. If you don’t find any errors, you’ll need to implement some healthy financial habits to try to impact your score. This can include things like:

  • Paying off as much of your debt as possible (ideally all of it)
  • Increasing your overall income
  • Making sure you pay all your bills on time
  • Using less credit

While it’s not going to improve overnight, you may be able to decrease the chances of being declined for a personal loan over time.

3. Submit Another Application or Reassess your Potential Options

If you feel like you’ve addressed your problems and improved your financial standing, it might be time to submit a new personal loan application. Keep in mind that there may be an impact on your credit in doing so.

You might also want to consider looking into other potential options.

Personal looking at loan applications.

If your needs for a loan have decreased over time, you may want to consider spending more effort to build up an emergency fund. This can help you stave off the need for a personal loan when facing emergency expenses in the future. If you’ve improved your financial situation but still need a loan, you may now be eligible for a loan with rates that suit you better. In general, take the time to assess the landscape and see what’s out there.

Take the Necessary Steps to Improve your Financial Situation

We know how deflating it can be when you submit a personal loan application just to turn around and be rejected. It can be easy to slip into despair when your needs for those funds are immediate. Just remember that your situation doesn’t need to be permanent.

The first thing you’ll need to do is figure out where your problems stem from. Do you already have too much debt? Is your income too low? Are you asking for too much money? Once you’ve done that, you can start to take the steps needed to address your problem. We’re not saying it’s going to be easy, but with the right information in hand, you can slowly start to work yourself into the financial position you want to be in!


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