When you are faced with an unexpected expense or an unforeseen big purchase, a loan can help you pay for it. However, loan approval is not always guaranteed. There is always the possibility that your loan application will be rejected.
If you have faced a similar situation and you find yourself asking, “Why was my loan application rejected”, we have listed all the possible reasons in this comprehensive guide.
Read on to find out why your loan application has been rejected and what you can do next to acquire the money you need.
Why Was My Loan Application Rejected?
There are many reasons why your lender may have rejected your loan application. Some of the most common ones include:
1. Low Monthly Income
Your monthly income is one of the key requirements for obtaining a loan. When reviewing your loan application, it is the first thing that lenders check. It indicates whether you will be able to repay the loan from your current income.
If your monthly income is too low and you already have other financial obligations, your lender may reject your application as approving it may be too risky for them.
2. Poor Credit Score
Another common reason why loan applications get rejected is due to poor credit. Every lender has a minimum credit score requirement. Most of them don’t accept credit scores lower than good. In fact, some even require you to have excellent credit scores.
So if your loan application has been rejected, the culprit might be a poor or fair credit score. Make sure to check your lender’s minimum credit score requirements and see if you meet them.
Some lenders may reject your application even if you meet their credit score requirements. This is because your credit score may not be high enough to fulfill all of your debts, your credit accounts, and your monthly income.
If your lender has rejected your loan application based on your credit report, they are obliged to explain why your application was rejected and share a copy of your credit report’s score.
3. High Debt-to-Income Ratio
Another reason why your loan application may have been rejected is because you have too much debt. If you try to take out a new loan while already having too many credit accounts, it may indicate that you’re a risky borrower.
Having too much debt also translates to a high debt-to-income (DTI) ratio. A high DTI ratio indicates that a big chunk of your current income goes towards paying off your existing debts. So if your DTI is too high, your lender may reject your loan as they may suspect that you won’t be able to repay the loan.
4. Unable to Meet the Eligibility Criteria
Every lender has certain eligibility criteria that borrowers need to meet in order to obtain a loan. These requirements range from a certain monthly income to credit score, age, current debt obligations, and your residence, among other things.
If you fail to meet your lender’s eligibility criteria, your loan application will be rejected. So make sure to check their eligibility requirements before you apply for a loan. Check out their website or contact them directly to inquire about it.
What to Do If Your Loan Application Has Been Rejected
Don’t worry if your loan application has been denied. Before you reapply for a loan, analyze why your loan application was rejected in the first place. If your loan was rejected due to a typo in your application, you can contact your lender to fix it and then reapply.
But if your loan application was rejected because of a low credit score, high DTI ratio, or low income, it is better to wait until you improve these statistics. For instance, you can apply these strategies to improve your chances of loan approval.
Make sure to wait until the problem has been addressed. This is to avoid repetitive hard credit checks by lenders, which can harm your credit score. Once you have improved your credit score, monthly income, or DTI ratio, reapply for the loan.
What to Do If You Can’t Reapply for the Loan?
If you need the money urgently and cannot wait until your chances of loan approval are good, you can opt for a 401(k) loan from your retirement account. You can also consider borrowing from family as there are no interest costs or credit checks.
Additionally, you can try applying for a personal loan with a lender that has less stringent eligibility criteria. For instance, Cash in Minutes offers personal loans in Utah with same-day funding. In addition to minimal requirements, we have highly affordable rates.
So apply now to get your funds the same day!
EN 
ES 