If you need a loan but can’t seem to be approved for one, the first step you’ll need to take is to determine the reason why your loan application was declined. Personal loan applications are declined every day for a variety of reasons. To find out why you were rejected, consider calling the lender to ask them directly or review the adverse action notice provided to you upon or after denial. If they are unable to provide you with a specific reason for denial, you’ll need to do a little more research into your current financial situation. Let’s take a look at a few of the most common reasons why an individual may be disqualified for a loan.
You Might Not Meet The Basic Requirements
To qualify for a personal loan, there are a few basic requirements that you’ll need to meet. Although some of these requirements may vary from lender to lender, most of these are fairly common. These requirements include:
- Must be 18 years of age or older
- Must be a U.S. resident
- Must be employed on a full-time or part-time basis (including self-employment)
- Must have a valid checking account
- Must have no recent bankruptcies filed against you
Your Credit Score May Be Too Low
Though credit score requirements for personal loans may vary depending on the lender, most lenders will want to see a credit score that falls within the range of 600 – 700. If your credit score falls below this threshold, it might be tougher for you to get approved for a personal loan.
Your Income May Not Be Sufficient Enough
One of the most important factors that lenders consider in qualifying borrowers is that they will be able to afford to repay their loan. Lenders will want to review your income to ensure that you make sufficient amounts to afford the monthly payments. If you try to borrow more than you can afford, a lender will likely deny you.
Your Debt-To-Income Ratio May Be Too High
Your debt-to-income (DTI) ratio compares your monthly debt payment obligations to your monthly gross income. Debts such as credit cards or other loans contribute to this number, whereas utility bills and living expenses do not.
With a DTI of around 36%, you will likely begin noticing that your DTI is impacting your ability to secure a personal loan. However, if your DTI reaches 43% or higher, your chances of approval will be greatly impeded.
There Could Be Missing Information Or A Mistake On Your Application
When applying for a personal loan, a common mistake that many potential borrowers make is forgetting to include the necessary documents or making a mistake on their application. When processing your application, false or missing information will be detected by the lender’s system. This can trigger an automatic denial of your loan.
Always be sure to double-check your information when applying for a loan and be sure that all paperwork that the lender has asked for is being provided.
