09 Aug 2021, Author:

Applying for a loan and having it rejected can feel as if you have been rejected as a person. Many borrowers panic and begin feeling worried as to whether they are no longer eligible for any loan out in the market. However, the truth is that rejections happen to so many people.

Don’t allow a loan rejection to define you as a person. Usually, lenders have internal checklists that they use to either approve or reject loan applications. Anyone not meeting their minimum requirements ends up being declined. Take every rejection as a window to help you make financial adjustments to meet their criteria.

Reasons For Loan Rejection

Before looking at the things to do following a turndown, you must understand the common reasons people get declined. Here are some of them:

Bad Credit History – Unless you are applying for a personal loan or student loan, your credit history plays a critical role in whether you get approved or not. If you have had bankruptcies, past due collections, and other credit hiccups in the past, you may be rejected.

Debt to Income Ratio – Lenders look at your existing debt level and income to determine how much of your income goes to debt repayment. As a rule of thumb, debt levels exceeding 40% are seen as a danger sign by lenders.

Inconsistent Employment History – Much like lending money to friends, lending institutions review every application individually to check for consistency of the income listed. People who have changed jobs recently may paint a picture of instability which is a red flag in loan applications. Fluctuating income is also a contributing factor for declines in people who are self-employed or in the gig economy.

Mismatch of Loan Purpose – Personal loans give borrowers a lot of headroom on how they use the funds. That being said, some lenders may specify what their funds can and cannot do. Ensure the loan application fits the purpose to avoid rejections.

What to Do If You are Declined

Assuming you are reading this article when you have already been declined for whatever reason, here are some action items you can implement to improve your chances of getting approved.

Read Through the Decline Notice

Once rejected, most people don’t even bother reading the notice and seeing why they were being rejected. Lenders normally send adverse action notices detailing the reasons why applications were denied. If your reason for rejection has something to do with your credit report, check the specific entries to determine the credit bureau that reported the information.

Review Your Credit Report

It is not uncommon for your credit report to have errors. Once you get your copy of the credit report, check for any errors and dispute any inaccuracies. For instance, you could have cases where somebody’s account information found its way into your credit report.

If you filed for bankruptcy, ensure that there is no account that has been included yet it was discharged. You may pay a bill on time, but still, it ends up as a negative listing on your credit report. Always look around for signs of identity theft such as purchases that you didn’t make, unfamiliar accounts, and any credit applications you didn’t complete.

Enhance Your Credit Score

If your credit score is too low because of missed payments, debt to income ratio, late payments, credit utilization, and recent inquiries, it is time you repaired your credit status. Some of the action steps to boost your credit score includes:

  • Making sure all payments are made on time.
  • Cultivating a healthy debt to income ratio. If you can, pay down your debts as these lower both your total credit utilization and your debt-to-income ratio.
  • If you have applied for a credit facility recently, chances are that a hard inquiry was conducted on your account. When the inquiries are too many within a short period, your credit score may take a dive. Always limit your loan applications or apply for personal loans for bad credit as lenders of these loans do not do hard inquiries.

Get a Co-signer

If your financial life is punctuated by a lack of a steady income or other financial setbacks, you need to find a co-signer. Applying for a loan with a co-signer helps you in getting approved fast. You may also get a higher loan amount and better-repaying rates.

However, before you agree to become another person’s co-signer, ensure you consider all the factors including affordability of the loan repayments. The co-signer takes an equal responsibility and accepts to be legally bound to pay his share of debt until it is over.

Reduce Your Loan Size

Going for a smaller personal loan can get you approved. This is because a smaller loan is less risky and can help boost your debt-to-income ratio. When you apply for less money, you will have to reprioritize your needs as the finances may not be enough. However, you should consider almost every option before deciding to apply for a lesser loan amount.

Shop Around in the Market

Lenders have different criteria and requirements that they use in either approving or declining loan facilities. Another factor is that you may be charged high rates and fees if you don’t shop around for competitive loan products.

You can use loan comparison tools to determine the best offers. Chances are high that you will get a lender who may approve you without even changing anything from your previous application.


Being turned down for a personal loan is an experience that many people have gone through. The key is not to give up because there are a lot of factors that come into play when you are being assessed as the borrower. Carefully read the reasons why you were declined as they will help you form the next strategy. Before signing up for any loan, ensure that you shop around for the best-priced credit facility.