Personal loan got rejected? Here's what to do next

If your personal loan got rejected, you can find out why you were turned down and reapply with a stronger application.

A rejection is useful information that points you toward your next step. The sections ahead cover how to read your denial reason and protect your credit as you move toward approval. You can start with a personal loan through Achieve when you're ready to explore your options.

What to do if your personal loan got rejected

When your personal loan gets rejected, work through four steps in order.

• First, find out exactly why the lender turned you down by reading your adverse action notice.

• Second, check your credit reports for errors.

• Third, try to fix the specific issue, whether that means a lower debt-to-income ratio or a smaller loan amount. You could also add a co-borrower.

• Fourth, find a lender that fits your profile and reapply.

Each step builds on the one before it, so you don't have to guess your way forward. The lender already told you the main reason, or how to get it, and that reason is your roadmap.

Common reasons a personal loan application gets denied

Lenders turn down applications for a handful of predictable reasons. Here are the ones you may run into:

• Low credit score: Your score is below what the lender requires, one of the most common reasons for a denial.

• High debt-to-income ratio: Your monthly debt and housing payments take up too much of your income, leaving little or no room for another payment.

• Low or unsteady income: Your income falls below the lender's requirement, or it changes too much from month to month.

• Loan amount too large: The amount you asked for is too high relative to your income, or your request exceeds the lender’s maximum loan amount.

• Incomplete or inconsistent application: Missing details or numbers that don't match your documents could stall the review.

• Unmet basic requirements: You don't meet a baseline rule, such as minimum age, US residency, a valid ID, or an active bank account.

• Loan purpose the lender won't fund: Some lenders limit which uses they'll approve.

• Too many recent applications: Several applications in a short window could signal risk to a lender.

Lenders weigh your whole picture, so strength in one area could offset a weak spot in another. A single weak spot doesn't have to sink your next try.

How to read your adverse action notice

An adverse action notice is the written explanation a lender must give you when it denies your application. The notice is one of the most useful tools you have, because it tells you what to work on next.

By law, the lender must give you the main reasons for its decision or a notice on how to get them. You have the right to request those reasons within 60 days.

When a lender bases a denial on your credit report, the notice also names the reporting company and shares the credit score used. You can get a free copy of that report within 60 days. Read it closely, dispute any errors with the reporting company, and add a statement if a dispute isn't resolved the way you'd like.

The Equal Credit Opportunity Act makes it illegal to deny credit based on certain personal traits. Those include race, color, religion, national origin, sex, marital status, age, and public-assistance income. File a complaint with the CFPB when you believe a denial was discriminatory.

How your credit score affects approval

Lenders use your credit score as a quick signal of how you've handled credit in the past. A score below a lender's cutoff is a common reason for a denial. Each lender sets its own cutoff, so there's no single industry minimum.

How your debt-to-income ratio affects approval

Your debt-to-income ratio, or DTI, is the share of your gross monthly income that goes toward your monthly debt payments plus your housing costs. Lenders use it to gauge how much room you have for a new payment.

Here's a simple example. Say you earn $5,000 a month before taxes, and your rent, car loan, and minimum card payments add up to $1,800. Your DTI is $1,800 divided by $5,000, which comes to 36%.

A high DTI is a common reason for a denial, because it signals limited room for another payment. Most lenders prefer a DTI at or around 43% or lower. If you lower your DTI, you might have an easier time qualifying for a loan when you need one.

You can lower your DTI before you reapply. Pay down a balance, request a smaller loan amount, or add income. To run your own numbers, try a debt-to-income ratio calculator.

Does a rejection hurt your credit score?

When you applied for the loan, the lender added a hard inquiry to your credit report. A single hard inquiry should have little impact on your credit score, and one application rarely does lasting harm.

A hard inquiry happens when you authorize a lender to check your credit to make a lending decision.

Each hard inquiry could knock a few points off your FICO Score. The effect diminishes over the next 12 months. The effect of the inquiry is the same whether your application was approved or denied.

How to improve your chances before you reapply

You have several ways to strengthen your next application before you try again. A few moves could help right away:

• Request a smaller amount: Ask to borrow less so your budget covers the payment with room to spare.

• Add a co-borrower or co-signer: A co-borrower shares the loan and the funds. A co-signer guarantees repayment without receiving funds.

Over the next months, you can also pay down balances, pay every bill on time, correct credit report errors, and steady your income. These steady habits could strengthen your credit profile before your next application.

You can prequalify with Achieve using a soft inquiry, and a dedicated Loan Consultant reviews your full situation, not just your score. Prequalification gives you an estimate, so you can weigh it before deciding whether to submit a full application. Any final offer depends on that full application and underwriting.

Achieve is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.

When to reapply after a rejection

If your personal loan got rejected, the right time to reapply depends on why you were turned down. Match your timing to the specific problem the notice describes.

If the problem was a fixable error or a missing document, you may be able to reapply right away with the correction. If it was a low credit score or a high DTI, give yourself a few months first. Use that time to make on-time payments and lower card balances.

Finding a lender that fits your profile could make more sense than trying the same lender again with no changes to your application. Submit a full application only when a lender looks like a strong match, which also helps limit hard inquiries.

Other ways to get the funds you need

If your personal loan got rejected more than once, you still have options to explore:

• Credit union loans: Many credit unions offer small-dollar loans or payday alternative loans with more flexible criteria than unsecured loans.

• Secured loans: A savings- or CD-backed loan could be easier to get than an unsecured loan.

• Co-borrowers: When the two of you share an expense, applying together could strengthen the application.

• Home equity: If you own a home, borrowing against your home equity is another route worth exploring.

Steer clear of payday and title loans. They typically carry very high costs and fees that could pull you deeper into debt. Avoid them even when you need money fast.

Find out if you qualify

When you're ready for the next step, you can review estimated options with Achieve using a soft inquiry. A soft inquiry doesn't affect your credit score. Prequalification gives you an estimate based on a soft inquiry.

Find out if you qualify to get a clear picture before a full application.