Was your loan application rejected and you don’t understand denial reasons? Are you wondering when you should apply again? Don’t worry. There are a handful of things that you can do to avoid loan denial and make your next application successful.
1. Reasons Leading to Loan Rejection
Finding out why your loan was denied might not be so easy as it seems at the first sight. Still, it’s worth a try.
Here are the most common reasons which can contribute to loan rejection:
Lenders use your credit report to access your loan eligibility and the types of risks you pose. Your chances of getting approved can be ruined by having a late payments history, recent bankruptcy, high credit card debt, or defaults on other loans.
Your lender might have found out that you submitted the wrong information during the application. For instance, you may have written that your income is $200, but later find out that you earn $300 when they contact your employer for verification.
Unemployment/Lack of Adequate Income
Maybe your lender found out that your income is not sufficient to cover the loan. This is common in unsecured loans where you don’t give collateral.
Lenders look at the number of loans you have before they add another one. More than half of your income should not be directed towards loan repayments. If you have many credits, chances could be high that your loan was rejected on that ground.
Lack of New Documentation
If your lender asks you to provide more information, be sure to do so. Your loan application will not be approved if your documents file is incomplete. However, if they keep asking for the same information every time, that could be a scam, keep copies of all the documents you submit to your lender.
A Large Loan Amount
Personal Loans can be used to consolidate the existing debts. The application may however not be accepted if the amount you are asking for is too much. Even if you are not servicing other loans at the time of application, a substantial loan amount may not be accepted especially if it will take most of your income.
Too Many Rejections/Applications
Every loan application that you make is usually recorded in the credit report. Also, some lenders make inquiries every time you apply for a loan. Too many inquiries are considered to be hard, and they can hurt your credit report, and cause loan rejection. Be sure to check beforehand if the loan you are applying for is a fast approval loan that doesn’t require a hard credit check.
2. Does A Loan Rejection Impact Your Credit Score?
There is a strong link between loan rejections and credit scores, and before engaging into submitting hundreds of applications, you should take into account the following info.
- No, a credit or loan denial does not affect your credit score. The credit report will indicate that you made an application, but it will not show if the loan was approved or not.
- The score, however, can be slightly affected by the number of inquiries made by the companies. This is because the account keeps a record of the number of queries made and how close in time they are to each other.
However, the number of inquiries will not affect your credit score if the inquiries are spaced enough.
3. Why Was My Loan Rejected?
Behind every loan approval or denial is a very complex mathematical calculation of the probability that the loan will be repaid. Every lender has its own scoring tools that assess several factors that reflect the repayment capacity of the borrower.
The following reasons could have contributed to loan rejection:
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- Employment Status – lenders look at your employment status to know how stable you are to repay. If your employment has some ups and downs, then that could be the source of loan denial reasons.
- Debt burden ratio – lenders may deny you a loan if you have a substantial debt burden. You don’t qualify for a credit if your debt to income ratio is more than 43% of your salary.
- Credit score – maybe you have a poor credit score. A bad credit score could be caused by defaulted loans or late payments.
- Age – the standard eligible age for personal loan qualification is 21 to 65 years. Your loan may be denied if your age is outside the age bracket.
- False Information – lying on a loan application is a serious reason why a lender might reject your loan application.
4. How Can You Avoid Loan Rejection?
prevented if sufficient effort and discipline is invested towards understanding what are the success factors of a loan application. Here are some tips that you need to take into account to avoid your loan application being denied.
The best defense against denial of short-term loans is to understand how they work. These tips will reduce your chances of rejection:
- Check the credit requirements – go through the terms and conditions of the loan. You must meet all the requirements for the application to be approved.
- Repay your existing loans – your loan may be rejected if you are currently servicing other loans.
- Have sufficient collateral – not all short-term loans are unsecured, and especially those obtained from banks. Collateral will increase your chances of approval and getting a loan.
- Verify your details – double-check your loan application details before you submit. Small mistakes, missing or false information can result in a loan rejection.
5. How To Increase Chances of Getting a Loan after Loan Rejection?
Treat each loan rejection as a sign that not everything is perfect in your financial situation. Start acting immediately towards improving your chances of getting a loan.
First, understand the fundamental reason which led to the loan denial. Then follow these steps on how to get a loan after being rejected:
- Ask questions – engage your lender in an open conversation to understand why your initial application was not approved. Your lender might give you more tips and helpful advice, so listen to it carefully.
2.Create a checklist – based on the information you get from your lender, create a list of your requirements. Note down what you lacked during the first application and think to turn lender’s no into a yes.
- Work on your credit score – try to improve your credit score if that’s the reason why your loan was not accepted.
- Pay your debts on time – take every possible step to pay back your loans faster. This might open up new possibilities for you to finance your needs without even borrowing money.
6. What Are Your Options If You’ve Been Subject To Loan Rejection?
Unfortunately, being rejected on a loan does not cancel your need for money in any way. See here what are your alternatives in case you’ve been denied a loan.
Try these options:
1. Speak to Your Lender
Confirm the main reasons behind the loan denial. It could be something you can work on within a short period. All lenders need potential clients, and they might call you back after a while.
2. Keep Applying Elsewhere
Look for help from another lender. Different lenders have different requirements, and therefore the first denial should not mean the next lender will also reject your application. If bad credit is the reason behind your denial, look for the lenders who offer payday loans to people with a poor credit history. You should, however, avoid too many applications as they may affect your credit history.
3. Look for a Co-signer
There is nothing wrong will co-signing especially if you are a young working adult. Your parents, relatives, or workmates could be your co-signers.
4. Seek Advice
Involve a third party in your situation to help you out. For instance, depending on your particular location, you can involve a debt counselor or other credit advisors. Read online materials and magazines to get more information and helpful tips.
5. Ensure That Your Next Applications Will be Successful
Don’t panic or be disheartened because you didn’t get the loan. Be patient. Work on the mistakes you made last time so that you can present yourself better during the next application.
7. When Can I Apply for a Loan Again After Loan Rejection?
One of the most common questions after a loan has been denied is how long should it take before applying for another loan. The answer depends on your circumstances. Generally, you can apply again after a rejection immediately after the loan was denied, you just have to choose another lender.
However, don’t rush to re-apply. Too many loan applications can hurt your credit score. Act carefully and follow these steps before you attempt to apply for the second time.
Step 1: Understand why the loan was rejected – this could be due to bankruptcy, lack of income, poor credit score, age limits, etc.
Step 2: Fix the issues – look for new ways of fixing the problems pinpointed by your lender as the cause of rejection. For instance, you can increase your income or rebuild your credit.
Step 3: Find the right lender – carry out adequate research on the available providers. Check the terms and conditions as well.
You can apply for a loan again with confidence – but avoid making errors in your submissions.
8. Where To Apply For A Loan After Loan Rejection?
Ok, you have just been rejected on a loan. Do you wonder what’s the next step for you? Revising your money needs, borrowing from friends or family or looking, or searching for another lender? These are all questions that will lead you to the best option if you will research them well.
Loan denial happens quite often, but when it happens to you, what do you do next? First of all, do not panic. A loan denial hurts at first, but it can also serve as an alert to a problem with your credit or your finances.
Think Again if You Really Need the Loan
The first step to take after your loan was rejected is to reassess whether you need the loan. While you may feel like you need to find an alternative like borrowing the money from relatives or friends, don’t make any rushy decisions.
Ask Questions about Why Was the Application Rejected
Then try to find out why your loan application was denied. Lenders will usually be happy to explain their decision, and they’re required to disclose specific information, so nothing is stopping you from finding out.
Things to Do Before You Apply Again
Before you apply for another loan after rejection, ask yourself some questions.
Important Look at your credit report the way lenders do. You are entitled to a copy after the rejection, so you should look for easily corrected items or errors and fix them immediately. You may need a more substantial down payment to get approval, or you may have to find a different lender, one who is less reluctant to low credit scores and who is willing to take a little extra risk for a somewhat higher APR.
Advice In any case, unless your loan denial was a fluke or the product of a mistake, an examination of why you were denied should be treated as a learning tool, and we recommend you to take immediate actions to improve your financial situation and avoid any subsequent loan denials.
9. How Long Does A Loan Rejection Stay on Your Credit History?
Loan rejection stays on your credit history for a longer period of time, but this does not mean that it will impact your credit score. While being declined on a loan has no effect on credit scores, the general recommendation is to still avoid rejection if possible.
On the one hand, if you handle debt inappropriately, it will stay on your credit report for years and have an impact on your credit score, and that can cost you a lot over a long period. That said, the older your mistakes get, the less impact they’ll have on your credit score.
There are other items that can appear in your credit history that might have an insignificant effect on your credit report. One of those comes when your loan application is rejected.
Information According to Experian, which is one of the three leading credit reporting agencies, a credit report won’t show whether or not a loan application is approved or declined, which means that being rejected has no effect on credit scores.
That said, in most cases when you apply for a loan, an inquiry does appear on your credit report because it indicates that you have applied to take on more debt. From the perspective of credit reporting agencies, the potential new debt means additional possible risk, so the inquiry itself can have a minimal negative impact on your credit score.
Our Team of Experts is Here to Help
This section of our site is intended for those who experienced loan denial in the process of applying for a loan. Please feel free to address our experts any kind of questions related to surviving a loan rejection.
- Facing Loan Denial
- Reasons for Loan Rejection
- Tips on Overcoming Rejection on a Loan
- Insights on What Happens after a loan rejection
Financial Literacy Incentives
Your financial well-being is your own responsibility. We encourage you to use any available occasion to improve your financial literacy. This will allow you to make better decisions concerning your money and personal finance. The content provided on our site shouldn’t be considered as financial advice. We’re not bearing any responsibility in relation to decisions based on them.