4 steps to take if your loan was denied

You still might be able to qualify for a personal loan, even if you’ve been rejected by a lender. In some cases, all you need to do is apply with another provider. In others, you might need to build your credit and some changes to your personal finances.

1. Ask why your application was denied

Many lenders will automatically tell you why your loan application was rejected. But with others, you might need to ask for an explanation.

Here are some common reasons lenders reject personal loan applications.

Low credit score

Having a low credit score can be cause for immediate rejection, since most lenders have minimum credit score cutoffs.

Generally, you need to have a credit score over 670 to qualify for most personal loans — what lenders consider to be good credit. But each lender has its own requirements. It’s possible to find a personal loan, even if you have bad credit.

Not enough verifiable income

Most lenders have minimum income requirements, even if they don’t advertise it. Usually you need to make at least $24,000 a year before taxes.

This is often a problem for self-employed borrowers, especially if your income varies from month to month. It's difficult to prove that you’ll meet the income requirement while you're repaying the loan. Lenders can also struggle to verify your income if you get paid in cash.

Low cash flow

Cash flow is the income you regularly have coming in each month after debt payments and monthly expenses. In many cases, you need at least $1,000 a month left after expenses.

If you have inconsistent income because you’re self-employed, it can be difficult to convince a lender that you consistently meet this requirement.

High DTI

In addition to looking at the dollar amount of monthly income after expenses lenders also look at your debt-to-income ratio, or DTI. Your DTI is the ratio of your monthly income compared to debt repayments and other regular monthly expenses. If your DTI is above 43%, you can’t qualify for a loan with most lenders.

Too much debt

Even if you have a low DTI and enough cash flow, some lenders won’t accept borrowers who have high amounts of long-term debt.

For example, having over $40,000 in student loans can get your application thrown out, even if you have low monthly payments. Same goes for high credit card balances, which typically don’t factor into your DTI or cash flow.

Thin or negative credit history

Most lenders prefer to work with borrowers who have at least three years of credit history. But even if you’ve been building credit for a longer period of time, you could still be rejected if you only have one account on your report.

Having late payments, charge-offs and other negative marks on your credit report can also get your application rejected.

Mistakes on your application

Inaccuracies on your application can get it thrown out, even if you were a good candidate. If you accidentally write the wrong Social Security number, for example, your lender won’t be able to verify your identity. That’s why it’s important to review your application before you apply.

2. Look at your finances like a lender

There are a few ways to help improve your chances of getting approved without making any changes to your personal finances.

• Check your credit report by requesting a copy from Equifax, TransUnion or Experian. If you notice that there’s a negative mark that shouldn’t be there contact the creditor and ask to have it removed.
• Check your credit score using an online service. And make sure the service you use gives you your FICO score, which is the credit score lenders use the most.
• Calculate your DTI to make sure that it’s below 43%. You can use our DTI calculator to get an estimate of what your lender might see.
• Go over the last three to six months of bank statements to get a picture of your actual cash flow and spending habits.

3. Make quick fixes to increase your chance of approval

In some cases, you might only need to change your approach to getting a loan to get approved next time around.

• Ask a friend or relative be a coborrower on your loan if you need help meeting income and cash flow requirements. But make sure they have good credit and few personal debts.
• Consider applying with a cosigner if you can’t meet a lender’s credit requirements on your own — though be aware that most personal loan providers don’t accept cosigners.
• Secure your loan with collateral, like an investment account or real estate in your name.
• Prequalify with multiple lenders that have lower credit, income or cash flow requirements before you apply again. Prequalifying usually won’t affect your credit and lets you know if you meet the lender’s basic requirements.
• Make a down payment of at least 20% if you’re taking out a loan for a specific purchase. Lenders like to see that you’re willing to make a personal investment

If these changes aren’t enough to get you approved, taking out a loan right now might not be a good financial move.

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4. Make long-term changes to your finances

In some cases, you need to make some long-term changes to your finances before you can qualify for more debt.

• Make a budget to help curb spending if your cash flow is too low.
• Pay down low credit card balances to improve your credit score, lower your total debts and increase your credit limit.
• Build up a thin credit report by taking out a credit-builder loan or apply for a secured credit card to help .
• Contact with your creditors and ask for a payment plan that fits your budget to bring any delinquent accounts current.
• Use a DIY debt repayment method to strategically pay down multiple accounts. For example, the avalanche method focuses on paying down high-interest accounts first.
• Sign up for credit counseling at a nonprofit agency to come up with a debt repayment plan when you don’t know where to start. You can find a government-approved agency on the Department of Justice website.

Why do I keep getting denied for a loan?

The reason you keep getting refused for a loan depends on your financial circumstances. That’s why it’s important to ask your lender why your application for finance was rejected.

In some cases, it could be something from your past. Even if your finances are in good shape now, past late payments or delinquent accounts can get your personal loan application rejected. Usually, negative marks stay on your credit report for seven years.

Bottom line

You can still get approved for a personal loan after you’ve been rejected. Sometimes all you need to do is apply with another lender. But there’s a chance you need to make some changes to your credit and spending habits before you can get approved.

Compare our picks for the best personal loans to read about more options.