What Should You Do if Your Loan Is Denied? (2024 Guide) (2024)

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There are many reasons why your personal loan application could be denied, each of which can affect how and when you’re able to apply again (and ideally, get approved) for a new loan. Here are the most common reasons for loan denial.

Low Credit Score

Each personal lender has its own minimum credit score threshold for loan approval, which may or may not be published. If you have a low credit score and don’t meet this requirement, your loan application will likely be denied. In some cases, even if your credit score is higher than the lender’s minimum, you may still be denied if your credit score isn’t high enough to overcome your monthly income, overall debt, or recent derogatory accounts.

If a lender takes adverse action based on your credit report, they are requiredby law to provide you with a copy of that report’s score and an explanation of why your application was denied. You’ll also receive information about your score and have the option to request a complimentary copy of your credit report within 60 days of the notice.

>> Related:Learn more about the best loans for bad credit

Insufficient Income

Before approving you for a loan, personal lenders will want to be sure that you can afford to repay the loan along with any other financial obligations you already have. If you don’t meet certain income requirements for the lender — or if your income is too low to warrant adding to your current level of debt — you may be denied a personal loan.

>> Related:Learn more about low-income loans

Too Much Debt

Carrying too much debt can also impact your ability to take out a new personal loan, even if you’re managing that debt responsibly. This is often due to a high debt-to-income ratio, or DTI, which is a measurement of how much of your income is already allocated toward other debt payments.

No matter how much you earn, you can be denied a personal loan if your current minimum payments eat up too much of your paycheck.

Not only is it disappointing to be denied a personal loan, but it can also have credit-related impacts. If you formally apply for a loan and the lender conducts a hard pull on your credit, an inquiry will be noted and can temporarily ding your score. It will also demonstrate to other creditors that you are shopping around for new debt, which may adversely affect other credit-related products for which you apply.

If you later try to apply for a different loan, that lender will see that you received previous loan denials, which signals to the lender that other financial institutions were unwilling to extend new debt to you. The new lender may also decide to follow suit and deny your application, even if you meet certain eligibility requirements.

If you’re applying for a personal loan, you probably have a need (or at least a very good use) for the funds in mind. 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. You can then use this information to work towards boosting your credit, minimize your existing debt obligations, improve your DTI, add a cosigner or any number of things to improve your chances of success next time.

So, your application was denied but you still need a personal loan. Here’s a look at when you can reapply and how to boost your likelihood of approval.

Waiting Period After Rejection

If you’re looking to reapply for a personal loan with the same lender that already denied your application, you will likely need to wait a while before submitting a new request. This time frame varies depending on the lender and may range from 30 days from the date of last application to up to six months. This waiting period can also depend on why you were denied in the first place, and whether you make any changes to your situation that would change your financial profile or approval chances.

You can also choose to apply with a different lender. If you apply within a certain time period, your multiple inquiries may only count against your credit score once, helping lessen the impact on your FICO score. There is no minimum timeframe for applying with a new lender, though depending on your credit profile and why you were denied the first time, opting to wait may make more sense.

Improving Your Chances

Depending on why you were rejected for a personal loan, there are some things you can do to change the situation or even bump yourself past a lender’s eligibility threshold. You can then apply for a loan again — sometimes even sooner than the lender’s stated waiting period — and potentially get approved.

Some strategies for enhancing your loan eligibility include paying down existing debt, boosting your income or even applying again with a creditworthy co-borrower. Depending on your timeframe, you may also ways to improve your credit score by:

• Paying down debt balances
• Raising credit limits (which will improve your credit utilization)
• Making payments on time
• Finding (and disputing) any erroneous negative reports on your credit, if any exist

Choosing the Right Time

While it can be tempting to reapply right away, it might make more sense to wait a bit and submit your new personal loan application at the right time. By doing so, you can not only better your chances of approval but also ensure that you’re in a place of financial stability and able to take on the payment of that new loan.

Assessing your readiness looks different for everyone. Some questions you might ask yourself include:

• Has my credit score improved at all, especially if that was the reason for denial?
• Have I reduced my debt burden and/or debt-to-income ratio since the first application?
• Am I comfortable taking on a new monthly debt obligation with my current financial situation?
• How have interest rates changed since I first applied and will this affect my new loan payment?
• Am I making any significant changes to my application (such as adding a co-borrower) that would improve my approval chances?

Collectively, Americans currently have about $225 billion in outstanding personal loans, according to the credit rating agency TransUnion. This demonstrates just how popular this form of borrowing can be. Here are some of the most important advantages and disadvantages of personal loans to note.

Pros of Personal Loans

• Many personal loans are unsecured, meaning that you aren’t required to put an asset up as collateral.
• The funds don’t need to be tied to a specific purpose, so you can utilize them in almost any way you choose.
• Personal loans can be used to make big purchases, cover unexpected expenses, consolidate existing debt balances and more.
• Depending on the lender, personal loans can range from as little as a few hundred dollars to as much as $200,000.
• Unlike home equity lines of credit (HELOCs), home equity loans or other secured debts, personal loan funds can often be disbursed as quickly as the same or the next business day.

Cons of Personal Loans

• Interest rates may be higher than with secured forms of debt.
• Since collateral isn’t always necessary, many personal lenders have higher borrower eligibility requirements to meet.
• Personal loans are installment products; unlike lines of credit, which renew as you pay down the debt, you’ll need to take out another personal loan if you later need additional funds.
• Failing to repay a personal loan on time can damage your credit score.

If you can’t qualify for a personal loan or your application was denied, there are some other alternatives to consider that can put cash in your hand when you need it.

Secured loans and lines of credit may be easier to qualify for since they hold an asset (like your house, car, savings account, etc.) as collateral. Taking a loan out against your home, for example, enables you to tap into a portion of your property’s equity for whatever purpose you have. This loan — usually in the form of a cash-out refinance, home equity loan or HELOC — can take longer to process and get disbursed than a personal loan, though, so just be aware of your timeline.Furthermore, if you are unable to pay back a secured loan, you risk losing the asset you put up as collateral.

>> Related:Learn more about the best secured loans

Another option is to use a credit card to fund a big purchase or expense or use an available cash advance to get access to liquid funds you may need. If you already have an open credit card with an available credit limit, this may be your fastest option.

However, this will also usually be your most expensive option, with credit card interest rates averaging over 22% APR at the time of this writing, according to the Federal Reserve. That’s compared to personal loans, which average about 11.5%. Cash advances from your credit card can also some with significant fees, charged at a flat rate or as a percentage of the amount you take out.

Peer-to-peer lending may be another option if you meet the platform’s requirements. The rates may be higher with P2P loans depending on your credit score, income, and even your reason for borrowing, but can be an alternative if you’ve been denied a personal loan.

Personal loans can be a great source of funding if you need cash quickly or want to cover a large or unexpected expense. Qualifying for a personal loan, though, means meeting the lender’s borrower qualifications which involve income, credit score, DTI and more. If you don’t meet those criteria, your loan application may be rejected and you’ll need to wait to apply again.

By waiting at least 30 days to reapply for a personal loan, you give yourself adequate time to improve your financial standing and boost whatever factors caused your denial in the first place. With a little patience, preparation and financial diligence, you can often work your way toward a personal loan approval and the money you need.

Learn more about Stephanie Colestock

Learn more about Jen Hubley Luckwaldt