Were you recently rejected by a lender after applying for a personal loan?
If so, you might be wondering what in the world you’re supposed to do next. Getting rejected is never any fun, and it can be especially painful when it comes to trying to get a loan.
The lender may have rejected your loan for any number of reasons. It could have been because your credit score is too low. It also could have been because your income isn’t high enough.
Whatever the case, there are some steps you can take after getting rejected for a loan to put yourself in a better position for the next time you apply for one.
Let’s take a look at how you should react to getting rejected for a loan.
Figure Out Why Your Loan Application Was Denied
The very first thing you should do after getting rejected for a personal loan is figure out why your loan application was denied in the first place.
More often than not, a lender will tell you exactly why they weren’t able to give you a loan. They might cite your bad credit score as the reason for turning you down or point to your income as the culprit.
But if they don’t tell you why they rejected your loan application, you should ask for an explanation. You should also check out your financial situation to see what red flags exist.
Take a Closer Look at Your Credit Report
In many cases, lenders will turn down people for loans when their credit scores aren’t high enough. A low credit score indicates that a person might not be able to handle the responsibility that comes along with taking out a loan.
After getting rejected for a loan, you should spend some time analyzing your credit report closely. If your credit score is low, ask yourself these questions:
- “Why is my credit score so low?”
- “How much debt am I carrying around?”
- “What can I do to bring my credit score back up?”
By inspecting your credit report, you can paint a clearer picture of why you got rejected for a loan.
Fix Any Errors That Might Be Affecting Your Credit Score
While analyzing your credit report, you might find errors on it that are dragging your credit score down.
There might be debt on your report that doesn’t belong to you or a series of missed payment notifications that shouldn’t be there.
Studies have shown that about 20 percent of Americans have errors on their credit reports that they need to fix. You could potentially qualify for a loan in the near future simply by having any errors you find fixed right away.
Pay Down Any Outstanding Debts
Are there a lot of outstanding debts on your credit report?
This is a huge red flag for many lenders and could be the cause of you getting rejected for a loan.
There is, unfortunately, no quick fix for most people when it comes to paying down debt. But if your debt is holding you back and preventing you from taking out a loan, you should put a plan into place so that you can pay it off as quickly as possible.
It might feel like it’s going to be impossible to pay down debt. But in reality, you can usually pay it off in a matter of just a year or two when you take the right approach.
Consider Putting Down a Larger Downpayment on a Loan
One way to convince a lender to rethink their position on lending you money is to offer to put down a larger down payment on your loan.
Let’s say you want to borrow $10,000 from a lender. They might be convinced to loan you the money if you agree to put down a $500 or $1,000 down payment at the start.
This won’t always work, especially if you don’t have great credit. But a downpayment is an effective tool that can be used to show a lender you’re committed to taking out a loan and paying it back over time.
Ask Someone If They Can Serve as Your Cosigner
If your credit score won’t allow you to take out a personal loan on your own, you might have the option of using a cosigner to get approved.
A cosigner is someone who can vouch for you and let a lender know that they’ll get their money back at the end of the loan process. They should have good credit and be in a position to pay back your loan if you aren’t able to do it yourself.
Some people don’t feel comfortable serving as cosigners since their credit could be affected if you fail to pay back your loan. But if you can convince a parent or spouse to cosign a loan for you, you’ll increase your chances of getting approved.
Find Ways to Increase Your Income
At the end of the day, a lender wants to know that they’ll get all of their money back when you take out a loan through them.
One way to let a lender know you won’t have any trouble paying off a loan is by proving you’re making more than enough money to repay the loan you’re applying for.
If you don’t make enough money right now, you should make an effort to pad your income in whatever way you can. That might mean asking for a raise, getting a new job entirely, or taking on a second job to increase your income.
Regardless of how you choose to do it, adding to your income will put you in a good spot and encourage a lender to approve a loan for you.
Avoid Getting Rejected for a Loan Again in the Future
Getting rejected for a personal loan can leave you feeling hopeless as far as your finances are concerned.
But you don’t have to deal with rejection from lenders forever. By taking the steps listed here, you can increase your chances of getting approved when you apply for a loan again.
Check out our blog for additional information on personal loans and the best ways to get approved for them.