What to Do if Lender Rejects Your Loan Application

If you have ever tried to get a loan, you know the process is not always easy. It can be frustrating, and sometimes it feels like your loan application will be rejected no matter how much shopping around you do. But don’t know what to do if the lender rejects your loan application? This article will give you tips on handling such situations so that your next loan application is approved.

Why Was Your Loan Denied?

You know you want to get that loan, and most lenders want to help you. But sometimes things don’t work out. We want to make sure you know more about loan applications rejected. The most common reasons for a loan rejection are:

Bad Credit History

Your credit history is the most crucial factor in the loan approval process. Your loan application will likely be denied if you have a low credit score. Even though there are other lenders that allow bad credit borrowers to get the loans they need, most lenders will reject loan requests because of their poor credit history.

Minimum Income Requirement Not Met

The lender may set the minimum income requirement, or it may be set by federal guidelines that the lender must abide by. You will not qualify for a loan if your income falls below the minimum. The loan eligibility criteria vary by lender, but the typically minimum monthly income is $1,000 – $1,200. The higher your income, the better you’ll qualify.

High Debt-to-Income Ratio

It is just a fancy way of saying how much money you owe each month versus how much you make. A high debt-to-income ratio means that the amount of money you owe is too high for what you earn. If your debt is over 50% of your income, it might be challenging to pay back a loan without having to take on more debt or make drastic changes to your lifestyle.

Unstable Employment History

If you’ve only held one job for a short period and then took some time off, your lender may not be willing to take the risk of lending money to you. Lenders don’t like the gaps between your workplaces and see many changed workplaces as red flags. It shows them that you aren’t committed to staying a long time at one job and having a stable income.

Loan Purpose Mismatch

If you’re applying for a loan to buy your first home, but you’ve had trouble making monthly payments on your car, that will raise red flags for lenders. It’s essential to keep your credit card debt load (the total amount of money you owe) low and manageable so it doesn’t cause problems later in life when you want to buy something big like a house or start building wealth. If you’re already having trouble keeping up with car payments, chances are good that adding more debt and financial stress associated with it wouldn’t be wise right now.

Missing Information or Paperwork

Missing information or paperwork is a biggie. If you applied for a loan and got denied because of missing documents, you need to go back and ask the lender for the information they’re looking for—and then send it as soon as possible.

Does Denial Impacts Your Credit Score?

The short answer is no. But if you are applying for a loan and loan providers perform a hard credit check of your credit score and credit history, yes, it will. A hard credit check of your credit score means that they are looking at the credit history of your accounts, not just the ones you have with them. It could mean they see information on accounts you have closed or never used. If you have denied loan requests in the past, this could show up as a negative mark on your report and lower your score.

However, suppose your loan application was denied because it doesn’t align with what you want or how much money you want to spend (i.e., buying a new car when you only need one specific type). In that case, this doesn’t show up as a negative mark on your report and will not affect your score.

Actions to Take If You Were Declined for a Personal Loan

If you have been declined for a personal loan, don’t despair! There are plenty of ways to get the money you need. Here are some steps to take:

Review your Declined Notification.

If you receive a notice of denial for personal loans, the first thing to do is review the letter to determine why you were denied. According to the Equal Credit Opportunity Act, lenders are obligated to tell you the reasons for denial. The notice will include the reason for denial and any other information that might help you understand what’s going on with your application.

If there are any questions about why you were denied, contact the lender and ask them directly. They’re often happy to answer questions and help you work toward getting approved in future applications. If they can’t provide answers, try contacting another lender or asking friends or family members if they have any suggestions for other places where you can apply for a personal loan.

Assess your Credit Report.

You can get a free copy of your credit report from AnnualCreditReport.com. The information will show your current accounts, their open and closed status, and any payment history with the account (late loan payments, etc.).

Many consumers complain about many errors in their credit reports. So before you apply for another loan, make sure there aren’t any errors on your credit report that could cause you to be denied. If there are some misunderstandings in your credit report, dispute them with the credit bureaus (Transunion, Equifax, and Experian or another credit reporting agency), who will investigate and remove them if they aren’t legitimate.

Improve your Credit Score.

It is the most important thing you can do to increase your chances of being approved for a personal loan. Make any outstanding monthly debt payments and decrease credit utilization ratio to improve your credit score and avoid borrowing new loans and making charges on existing cards. 

Find a co-signer

If you have a cosigner, this is your best bet. Ask your friends, family members, and coworkers who may be willing to co-sign on a loan. Even if they don’t have much money, they may be able to help you in other ways, such as providing references or offering their credit reports as collateral for the loan.

Apply for a Smaller Loan Amount.

If you have a bad credit score or don’t have enough monthly gross income to qualify for a loan yet, applying for a $1,000 payday loan instead of $10,000 from payday lenders may be easier for you to qualify for. It will allow you to build up your credit score and prove that you can repay what you borrow.

Find Available Lenders

While your bank may not be willing to lend, other banks and credit unions might be willing to give you the money you need. You can check out the list of lenders near you to find companies that can help you.

Alternatives to Applying for a Loan

If you’re considering applying for a loan, there’s no need to go through the hassle. Instead of applying for a loan, you can use these alternatives.

1) Get an advance on your paycheck.

2) Borrow money from friends or family.

3) Use savings or investments as collateral (depending on the value of these).


Your loan application was rejected? Don’t give up yet! If you have read this article, then you know that there are many things you can do to increase your chances of getting a loan approved even with a bad credit report. We hope our tips will help you get the loan and get back on track financially and secure the future of your family.