Applying for loan can leave a permanent mark on your credit report whether you're successful or not. Find out more about the common reasons for declined loan applications, and how you can improve your chance of being successful. A common reason for a declined loan application is an error on the form, such as missing or incorrect information. It's best to wait 30 days before reapplying for a new loan, giving you time
to check the application and prevent any errors slipping through again. Beware that too many applications may leave a negative mark on your credit report, which can raise a red flag with banks and credit card companies. An application can also be rejected if you don't meet the criteria for the loan, including age, income, employment, residency and whether you're a homeowner. So carefully check the lending criteria before applying, especially as some lenders have specific
requirements. Loan applications may be rejected if the lender regards you as financially unstable. This can be due to a short employment history, from which the lender may view you as reluctant or unable to hold a job, implying there could be financial difficulties in the future. A short employment history can only be resolved by waiting. Staying in your current job for as long as possible will prove to lenders and banks that you have a stable income, and
therefore can make repayments on time. An insufficient disposable income is another reason for a credit application being declined. Without enough money coming in, the lender may assume that you won't be able to make the repayments on time and to a full amount. When filling out an application, household income is not limited to the applicant's personal income but can also include their partner's or spouse's income. Adding these figures may boost your financial strength and make it
more likely that your application is successful. Issues in a credit report or a low credit score are major factors for lenders when they decide whether to give a loan. Credit history Again,
waiting and building up a positive history with a credit-building personal account or a credit card will help. Credit rating You can improve your credit score by making payments on time, using a sensible amount of the agreed credit limit on credit cards and overdrafts, closing unused accounts, and settling outstanding debts. Signing up on the electoral register also helps, as it provides the lender with proof of your address. Defaults and CCJs So even though some lenders focus on your recent credit history, these marks can still severely affect the success of a loan application. Waiting until these marks have expired will give you a better chance. Beyond your controlCredit applications can be rejected for reasons beyond your control, such as errors on a credit report. So check yours regularly for mistakes. Spotting inconsistencies or errors can also reveal identity theft and fraud. Such instances could significantly impact a credit report without you being entirely responsible, and contribute to a declined application. Alerting the credit agencies will help them resolve the issue and remove the errors from your file. The waiting gameA loan is often a necessity in life, which means a declined loan application is a serious issue. But whether it was due to a poor credit report, short credit history, or simply a mistake, patience and discipline can resolve the problem. It's a necessary process in the financial world. AA Financial Services offers personal loans and savings accounts. Loans are provided by Bank of Ireland UK. AA Financial Services Limited is a credit broker and not a lender. AA Savings accounts are provided by Bank of Ireland UK. Published 14 September 2020  If you’ve been turned down for a personal loan—don’t panic, and try not to worry. Facing a cash shortfall is daunting, and having your loan application denied can feel like a personal rejection. But the truth is, it's something that happens to many people. The first thing to know is that having your loan application denied doesn’t define you as a person. Lenders must set minimum qualifications for all loan approvals. If you happen to fall just shy of those qualifications, you may be declined. That doesn’t mean you aren’t smart with money or financially responsible. It just means you need to make a few financial adjustments to meet their threshold. And, just because your loan application was declined this time doesn’t mean it has to be your last chance. In fact, there is a lot you can do to improve your odds of being approved. In This Article
6 Common Personal Loan Rejection Reasons1. Bad credit historyWhen it comes to any loan—mortgage, student loan, or personal loan—credit history is the number one factor lenders consider. Your credit history is the primary way lenders evaluate how likely you are to repay (or default on) a loan. If you’ve had credit hiccups in the past (e.g., past due accounts, collections, bankruptcy) your credit score may not meet the lender’s minimum requirements. You can order your credit reports free of charge through AnnualCreditReport.com to see where you could make improvements to boost your credit score. 2. High debt-to-income ratioEven if your credit history is OK, and you have made all your monthly payments on time, you may have your loan application denied if your debt-to-income ratio (the sum of all your debts divided by your monthly income) is too high. Generally, a low DTI (under 40%) signals to lenders a healthy balance of debt to income. To calculate your debt-to-income ratio, add up all your current debt—including credit cards, auto loans, and student loans—and divide it by your income. If your DTI is too high, paying down debt drops your credit utilization ratio and improves your debt-to-income ratio, increasing your chances of approval. 3. Unstable employment historyLenders generally want to see that any income listed on your application has been consistent, so they can assume it will remain so moving forward. This means if you have different pay stubs, recently changed jobs (in the last 60 days), or have freelance work from multiple employers, it may create a snag in your income calculations. If your income fluctuates because you’re self-employed or do seasonal work, that doesn’t mean your application will always be declined. While your paychecks may not be consistent or predictable, some lenders may be willing to look at your past tax returns so they can compare your income over a longer period of time. 4. Minimum income requirement not metAlong with income stability, lenders look for proof of income to verify you have the ability to repay what you borrow. If your income is below the lender’s threshold, you may be denied, or offered a loan for a lower amount. Make sure you include all forms of income in your next application, including any income from side gigs, investment accounts, or child support payments. 5. Loan purpose mismatchPersonal loans provide a lot of flexibility in how you can use the funds. However, some lenders may not allow you to use them for certain things like secondary education (i.e., college tuition), for making investments such as in stocks, or anything illegal or partially illegal (i.e., gambling). Make sure the loan application matches your purpose. For example, if you need funds for a professional certification or training, looking into a private or federal student loan may be more appropriate. 6. Missing information or paperworkLoans almost always require several forms of paperwork, including employment and income information (including tax returns, pay stubs, or bank statements), a credit report, government issued ID and in some cases collateral documentation. If you are missing some of this information you are essentially guaranteed to get denied. Make sure all of your paperwork is in order before you apply for a personal loan again. You may end up not needing some of it, but better to have it handy just in case. 6 Actions to Take If You Were Declined for a Personal LoanIf your new loan application was denied for any of the reasons above, here's a short checklist of action items you can go through to improve your chances of being approved next time. 1. Review your decline notice.The very first thing you should do is understand why you were declined for a personal loan. Any lender who denies loan approval is required to send an adverse action notice, which lists the reason(s) your application was declined. If you were turned down because of something on your credit report, this notice will tell you what in your credit report led to the decline, and the name of the credit bureau that reported the information. Because of the decline, you are eligible to receive a free copy of your credit report. 2. Review your credit report.Check your credit report for errors and dispute any inaccuracies with the credit bureau about your personal finance history. At least one in five consumers have an error on their credit reports, according to a study by the Federal Trade Commission. For example, it’s possible someone else’s account information could have been included in your report. Or, if you filed for bankruptcy in the past, be sure your report does not include accounts that have been discharged. Keep an eye out for inaccurate account information. If you paid a bill on time that is reported late, for example, you can dispute that information with the reporting credit bureau. Closed accounts reported as still active could have a negative impact on your credit score if the account has negative information. Go over not only each account, but your account history as well. And always be on the lookout for any signs of identify theft such as unfamiliar accounts, purchases you didn’t make, and credit applications you didn’t complete. 3. Boost your credit score.If your loan application was denied despite an accurate credit report, it could be your credit score is too low. Common reasons include:
4. Find a co-signer.If you don’t have a steady income, have had some financial setbacks, or are still building a good credit history, applying with another person could help get your application approved. Applying with a cosigner or co-borrower might even help you secure a better loan than what you would’ve received on your own, i.e., a better rate, a higher loan amount, or both. And there are additional factors to consider when applying for a joint personal loan. For example, both individuals are obligated to repay the loan, and both have rights concerning the funds. Here’s what you need to know about applying with a cosigner or co-borrower. 5. Apply for a smaller loan amount.Consider asking for a smaller personal loan than what you need, or asked for previously. A smaller loan will appear less risky to a lender, and may help improve your overall DTI picture which could help you qualify. While applying for less than you need may delay reaching your goal as quickly as you had hoped, it could turn out to be the more financially responsible path. For example, if you’re able to start paying down debt with a smaller loan at a lower rate sooner rather than later, that's a step in the right direction. Always consider all possible options, and run the numbers given your personal financial situation. 6. Shop around.Not all lenders have the same lending criteria and requirements. Rates, fees, and terms can also vary widely from lender to lender. By shopping around and comparing several loan offers against each other, you could end up saving hundreds, or even thousands, of dollars over the course of your loan. And after working through steps 1-5 above, you may want to try applying through a different lender simply to see if that makes any difference. Advice From LendingClub MembersMany LendingClub members have been declined on their first try. But they didn't give up, and neither should you. As you can see, a lot of factors play into whether or not you are approved for a loan. We’re here to help you make the journey to better financial health. Here are a few inspiring stories from some of our members who didn’t give up: Very strict underwriting, but if accepted into the club? WOW! You are taken care of. Don't give up if you don't get in the first time or second. Keep going and be on the lookout, once you're in they'll be offering incredible options for your finances forever. My need for debt consolidation came about as a result of a difficult personal situation, and my profession and work structureisnot typical.LendingClubwas not able to get me approved about 9 months ago, but they did provide me with some advice and an invitation to reapply after 6 months. After taking the advice and keeping on plan…they closely reexamined my atypical conditions. Their professional and thorough process has made it possible for me to put difficult times in the rearview mirror.”– Jim, a member from Texas* The first time I was so hurt when my loan was not approved. Then I got an email saying try again, so I did. Got a call a couple days later saying…you are approved. I can’t explain the joy of now being back in control.”– Ava, a member from Florida* The first time I applied, I was denied because I was not in a position to handle a loan. A few months down the line, I re-applied and was approved for a number of different loans (varying amounts, different lengths of time, and slightly different interest rates/APR). I chose the one that was best for me. In a few days, I had my loan! I consolidated my credit card debt, and now I can afford to buy a car in a few months, and down the line, to save for a down-payment on a house.”– Kearston, a member from Pennsylvania* See more LendingClub member reviews. Personal Loan Rejection Reason FAQsStill have questions? Some of these commonly asked questions may provide the answer. 1. Why does a personal loan get rejected?Many factors go into determining eligibility for a personal loan. The most common reasons for rejection include a low credit score or bad credit history, a high debt-to-income ratio, unstable employment history, too low of income for the desired loan amount, or missing important information or paperwork within your application. Your loan could also be rejected if the purpose isn’t for an eligible reason—like trying to take out a personal loan for investing. 2. What should I do if my loan application is rejected?Lenders are required to provide an explanation letter for rejected applications. If you’re rejected, read through the letter and determine what can be remedied. For example, you can work to improve your credit score or pay down high-interest debts to improve your debt-to-income ratio. You can also try to reapply with a cosigner—someone with a high credit score and a secure income—or opt for a joint personal loan, where co-borrowers share both the loan funds and responsibility for repayment. Both can increase your chances of approval. 3. Why was my loan declined?Personal loans can be declined for many reasons, but in most cases it’s due to a poor credit score or unreliable credit history. Before reapplying, take a look at your credit report (you’re allowed one free report per year from Equifax, Transunion, and Experian). If your score is less than good (660 or less), try taking some time to improve it. If you see any errors on the report, dispute them immediately with the three major credit bureaus. 4. How can I avoid being rejected for a personal loan?Lenders look at your credit score, debt-to-income ratio, income, employment history, and credit history as key markers in determining loan eligibility. If possible, work to improve your personal finances before applying or opt for a joint personal loan with a creditworthy co borrower to strengthen your application. If you’re concerned about being rejected for a personal loan, consider checking your rate online first. Checking your rate won’t affect your credit score and can help determine eligibility before you apply. *Individual results may vary. How long should I wait after being rejected for a loan?Wait to reapply
This leaves a mark on your credit file. Too many applications over a short period of time makes you appear desperate for money. Try to wait at least six months before applying for credit again. This includes credit cards, car finance or even a new mobile phone contract.
What happens if you are denied a loan?Lenders are required to provide an explanation letter for rejected applications. If you're rejected, read through the letter and determine what can be remedied. For example, you can work to improve your credit score or pay down high-interest debts to improve your debt-to-income ratio.
How long does a loan denial stay on credit?Both hard and soft inquiries are automatically removed from credit reports after two years. Credit reporting agencies such as Experian are not notified about whether your application for credit is approved or denied, so credit reports do not maintain a record of credit denials.
Does getting denied for a loan hurt?Getting rejected for a loan or credit card doesn't impact your credit scores. However, creditors may review your credit report when you apply, and the resulting hard inquiry could hurt your scores a little. Learn how to wisely manage your next application and avoid unnecessary hard inquiries.
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How soon can you apply for a loan after being declined
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