by Christy Bieber | April 30, 2019
When you're counting on a personal loan to help you finance a purchase or consolidate debt, it's upsetting to find your loan application has been denied. Unfortunately, this happens to many would-be borrowers.
It's important to understand why your loan application might be rejected -- as well as to understand your options for what to do afterward. This guide will provide insight into the financial issues that lead to rejection, as well as some tips on what you should do after being denied a loan.
Here are some of the most common reasons why a personal loan lender might reject your loan application:
When your lender denies your loan application because of your credit report, the lender must provide a "Notice of Adverse Action." This is a notification that information in your credit file was used against you. In this notice, lenders must explain what the problem was and tell you how to contact the credit bureau that provided the information.
If your loan was denied for some other reason, lenders usually tell you what the problem was when you receive your denial notification -- but not always. If the lender doesn't provide the information but you need to understand the exact reason you were rejected, you could try to call and ask, but there's no guarantee the lender will disclose all the details in their decision-making process.
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If you know the reason for the loan denial, you can take steps to correct the specific issue. For example, if your loan was denied because of a problem with your credit, you should:
If your loan was denied for other reasons, you can try to correct the problem -- but the approach you take will depend on the reason for the denial. You could provide missing information, for example, or submit a new application with more accurate details. Or you could work steadily at your current job to develop a stable employment history, or try to increase your income by taking on a side gig.
If you need to rebuild your credit, increase your income, or develop a history of stable employment, this could take time -- so you'll usually need to wait months or even years before you're ready to apply for a loan again. If you need financing right away, you could try to apply with a different lender that may have looser qualifying requirements, or you could try applying for a smaller loan that you might qualify for more easily.
Another option is to try to apply for a loan with a qualified cosigner. This is the quickest way to get approved for a loan after a prior denial, but you need to find someone who not only has good credit but is also willing to cosign and share responsibility for your debt -- and that's a big ask.
There are many reasons you may be denied for a personal loan -- and many steps you can take to respond to a denial and improve your chances of getting approved in the future. You just need to understand the reasons you were rejected and make a plan to become a more qualified borrower so you'll have your choice of lenders next time you apply.
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