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Rejected for a Personal Loan? 6 Steps You Should Take Now

Find out what you can do after being rejected for a personal loan. Learn about the different factors that could have affected your chances of approval, including income and credit scores. Take these steps to get approved for your personal loan.

Personal loans are popular options for borrowers because they can be used for nearly any purpose. However, like any type of loan, there is the chance that your application gets rejected.

If you were rejected for a personal loan, you don't have to feel down. Adopt a proactive mindset and take the steps to find out what happened and what you can do about it.

Here's what you should do right after getting the rejection letter to ensure that you qualify for the personal loan that you need:

1. Find out why you were denied.

The first thing that you need to do is to figure out the reason(s) that your application was denied. Usually, lenders will provide a reason as to why they denied your application.

Furthermore, the lender may offer pointers on exactly which parts of your application needs improvement.

According to the Equal Credit Opportunity Act, lenders are required to give you a reason as to why you were denied for a personal loan from their organization, as long as you ask within 60 days of being denied. According to the act, an acceptable and more specific reason that a lender could give you for why you were denied a loan is that, "your income is too low"; an unacceptable and unspecific reason is, "you didn't meet our minimum requirements"

2. Get your free credit report and/score.

By law, lenders must provide a copy of the credit report they used to deny your application, but only if you request it. Start by requesting a copy of your report from the lender.

Then, look at your credit report and the reason the lender provided when explaining why your application was denied. Sometimes there are easy steps you can take to improve your chances.

What are some things you might find on your credit report? Credit and bank accounts you have in your name, the revolving lines of credit you have (i.e. any type of credit card), all of the current accounts you have open, or may have opened in your life, the accounts you have that are delinquent, and all of your account balances.

3. Fix the problem(s).

Now, it's time to address the issues that caused your application to not be approved.

Credit report

Even if you have a fair credit score, many lenders will take a deeper look at your credit report.

If a lender sees a specific entry on your report that worries them, it could cause the lender to deny your application.

One thing that might scare a lender away is a past delinquency.

If you've recently improved your credit history, your score might have recovered, but even seeing one unpaid loan could cause a lender to deny your application. Lenders might also deny a loan application if you’ve applied for many loans in the recent past. 

Another thing to consider is that a lender might not want to be the first to take a risk on you.

If you’ve had a credit card or other type of loan in the past, but never had a personal loan, or any other type of installment loan, some lenders may not be willing to offer you a personal loan. Similarly, if you have a short credit history, that could cause your application to be denied.

Although bearing the burden of paying off a student loan can be stressful on you and your finances, having an installment-type loan, like a student loan, can actually help your chances of getting approved for a personal loan. Lenders like to see variety in your credit history, and that you have previously had a loan in your name that you are paying back monthly and on time. 

Credit score

If you have a bad credit score or no credit at all, it’s likely that a lender will refuse to lend to you.

With a history of missed payments or no history at all, the lender can’t feel confident that it won’t lose money by lending to you.

Income

When you apply for a loan, you have to show the lender that you have a source of income that you can use to pay the loan back.

If you don’t have a steady source of income, or if you cannot show the source of that income, lenders won’t want to offer you a loan.

The reason for this is relatively straightforward. Without money coming in, how will you be able to make monthly payments on a loan?

Some lenders might not be willing to lend to you unless you have a solid employment history.

If you’re fresh out of school or move from job to job a lot, lenders might be wary of lending to you, since you could lose your source of income unexpectedly.

Though your income doesn’t appear on your credit report, it affects your debt-to-income ratio.

If you have a lot of debt, and little income, a lender won’t lend to you. If you have little debt, and enough income to make payments on a new loan, you’re more likely to get approved.

Amount and term of the loan

The amount that lenders are willing to lend to you, and for how long, could affect your chances of approval.

If you have an okay credit score but want to borrow $100,000, that might be a red flag.

If you want to borrow a more reasonable sum, like $10,000, you’re more likely to get approved.

Note: Short-term loans are harder to get approved for because they’re harder to pay back. They also result in less profit for the lender, so there’s less of a reason for the lender to take the risk.

Here are some lenders that offer lower borrowing limits and longer repayment terms:

Lender Name Ranges of Borrowing Amounts Available Terms
Upstart $1,000 - $50,000 3 to 5 years
Discover Bank $2,500 - $35,000 3 to 7 years
Avant $2,000 - $35,000 2 to 5 years
Citibank $1,000 - $50,000 3 to 5 years
Marcus $3,500 - $30,000 3 to 6 years
Prosper $2,000 - $35,000 3 to 5 years
American Express $3,500 - $25,000 1 to 3 years
One Main Financial $1,500 - $25,000 2 to 5 years
RocketLoans $2,000 - $35,000 3 to 5 years
PNC Bank $1,000 - $25,000 6 mo to 5 years

Documentation

If you cannot provide enough documentation to show that you’re worth lending to, it will obviously affect your chances of getting a loan. Possibly the worst thing is having inconsistencies in your documentation.

For example, if you have a pay stub that indicates you make $40,000 and a tax return showing you make $50,000, that inconsistency will throw up red flags to lenders.

4. Give your credit score a quick boost.

Credit scores are the first thing that lenders look at when making lending decisions, so you want to make sure that you have a good enough score to encourage the lender to approve your application.

There are five factors that make up your credit score:

The largest portion of your score is based on your payment history. After that, credit utilization is the largest portion of your score.

One thing you can do to give your score a boost if you have any delinquent accounts on your report is to contact the lenders and try to settle the loans. Many lenders will be happy to help you set up a payment plan, or possibly settle for less than the full amount owed. If they then remove the delinquent account from your report, that can help your score.

Another short-term way to help your credit is to focus on your credit utilization.

This portion of your score is based on the total amount of money you are currently borrowing, as well as the percentage of your credit card limits that you’re using. The less you’ve borrowed, the better it is for your score. If you can, try to pay off some of your existing debts, since that will improve your credit utilization.

Rule of thumb: Try to keep your credit utilization ratio below 30%. This means that if you have a credit card with a credit limit of $2,000, you should keep your balance on that credit card below $600. 

If you do manage to pay off a credit card in full, make sure to keep the account open.

Having the unused card increasing your available credit will also improve your score. Also, ask the card issuers for credit cards you have to increase your credit limits, because that will also improve your credit utilization.

5. Research other potential lenders.

Once you’ve figured out why you were denied a loan, take another chance to gather up the documentation you’ll need to provide when reapplying.

Then, research multiple lenders who offer loans that meet your needs.

Just because you applied for a loan from a specific lender the first time, doesn’t mean that you have to submit your second application to the same one.

You might find that another lender is more willing to extend a large loan or offer loans to people with poor credit.

6. Try again.

The final step is to try again by submitting a new loan application. Most lenders will let you apply for a new loan without any waiting period after a denial.

The second time, you apply for a loan consider trying a secured loan. Secured loans require that you offer some collateral up front - that kind of collateral could be a savings account, a car, a house, or maybe even a stock. Although secured loans can be a riskier option since you are putting your own assets on the line, it can greatly increase your chances of getting approved for a personal loan.

Examples of Secured Loans vs. Unsecured Loans by Lender

Lender Secured Loan Unsecured Loan
TD Bank
  • Use your TD savings, Money Market Savings, or TD Bank CD as collateral
  • Variable interest rate
  • $50 origination fee
  • Loan amounts from $5,000 - No maximum
  • No collateral required
  • Fixed interest rate
  • No origination fee
  • Loan amounts from $2,000 - $50,000
Wells Fargo
  • Use your Wells Fargo CD or Wells Fargo Savings Account as collateral
  • Loan amounts from $3,000 - $250,000
  • $75 origination fee
  • No collateral required
  • Loan amounts from $3,000 - $100,000
  • No origination fee
PNC Bank
  • Requires non-real estate entities as collateral
  • Loan amounts from $2,000 - $100,000
  • Fixed interest rate
  • No collateral required
  • Loan amounts from $1,000 - $25,000
  • Fixed interest rate
M&T Bank
  • Use your M&T CD or M&T Savings Account as collateral
  • Loan amounts from $2,000 - $100,000
  • Fixed interest rate
  • No collateral required
  • Loan amounts from $2,000 - $25,000
  • Fixed interest rate
  • Other options to consider are reducing the amount you ask to borrow, and thus reducing the risk to the lender.

    You can also consider online lenders, who might use metrics beyond just your credit score when making a lending decision.

    Finally, if you know someone who is willing to cosign on a loan with you, that can significantly increase your chances of approval. Just know that if you fail to make payments on the loan, your co-signer will be forced to make payments on your behalf.

    Conclusion

    Applying for a personal loan can be stressful and difficult, so getting denied can make it seem like the whole process isn’t worth it.

    If you know what to do after getting a denial, you can bounce back and get the loan that you need.

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