Personal loans can be helpful for consolidating debt, covering emergencies, and making large purchases. But getting rejected for your loan application can be so demotivating and frustrating. Understanding the reasons why all of those applications were rejected, and how to correct those factors, can substantially increase your approval chances.Here’s a breakdown of the reasons for rejection of personal loan applications in the US, along with the steps and ways to rectify it:
Why it matters: Lenders use your credit score to assess the likelihood that you’ll pay back the loan. A low score indicates that the risk is high.
Check your credit score before you apply and strive for a score of 670 or higher (which is considered “good” by FICO). Clear past due payments and reduce excess payment to mount your credit score.
Why it matters: A high DTI (more than 43 percent) signals to lenders that you might struggle to take on more debt.
Why it’s important: Lenders need to trust that you have a steady income flow reliable
enough to repay the loan.
Documentation of stable employment, like pay stubs or tax returns. In these cases, a return to underwriting is warranted, but only with a co-signer who has income and good credit.
Why it matters: Even a small error — entering a wrong bit of personal information or
forgetting to fill out forms completely — can result in rejection.
Why it matters: Seek an amount much higher than what your financial profile supports, and the odds are tremendous the request is rejected.
Why this is important: Multiple credit applications in a single short time frame signals that you’re in need of funds.
Why it matters: Lenders rely on your repayment history to assess your character.
Comparison Shop: Lenders have different eligibility requirements. Shop around and see if another lender wants your business.
Pre-Qualify: Many lenders have pre-qualification tools that will confirm your eligibility
without affecting your credit score.
Financial Diligence: If you want to enhance your personal financial health, start an emergency fund, make sure you pay your bills on time and curb your debt.
A rejected loan application is not the final word. If you’re interested in learning more about what contributes to that denial so you can press the ‘next time’ button for a preparation strategy that at least maximizes your chances of getting approved, look no further. This may be a good time to get your finances in order, build a bigger deposit and approach lenders with products more suited to your circumstances.
When in doubt, consult with a financial advisor who can help you map out a way to get what you need financially without sacrificing your fiscal future.