When your loan request is turned down, it can be hard not to take it personally. But if your loan request was turned down, you must find out why.
Once you have a better idea of what happened, you will be able to take steps to improve your chances on the next try.
A loan application is often turned down because the applicant has a low credit score, a high debt-to-income ratio (also called DTI ratio), or not enough income.
If you need a loan but keep getting turned down, keep reading to learn about seven possible reasons why this keeps happening to you, as well as six ideas for what you can do about it.
Why you may have been declined for a personal loan
Personal loans can be turned down for many different reasons, but the good news is that you don’t have to guess why. Lenders should send you a notice of adverse action within the next 30 days, explaining why they did not approve your instant loan.
If you still have questions about what happened after reading that, you can call the lender and ask what happened. If you need a loan but can’t get one, one or more of the following may be to blame:
Your credit score was too low
When deciding whether or not to give you a personal loan, a lender will usually look at a number of things, such as your income and your FICO credit score.
Lenders can figure out how well you may or may not be able to handle money based on your credit score.
Your history of making payments and how much debt you have are two of the most important parts of your credit score.
If you want an unsecured personal loan, which is a loan that doesn’t have any collateral attached to it, most lenders will have stricter requirements for you to meet.
Some creditors will tell you the minimum credit score you need to get approved. If you don’t meet a lender’s minimum requirements, it will likely be hard for you to get a loan from that lender.
Even if you are approved for a loan even though you have bad credit, the personal loan interest rate you pay will be higher to make up for the higher chance that you won’t be able to pay it back.
You tried to borrow too much
Your request for a personal loan could be denied if you ask for more money than you can pay back on time and in full. This is because the amount of credit a lender is willing to give you depends on both how much money you make and how much debt you already have.
The lender may decide that you don’t meet the requirements to borrow a certain amount after looking at your finances.
Imagine that you want to get a personal loan in Singapore for $100,000 even though you know that your monthly income isn’t enough to cover the cost of paying back the loan. Because you are asking for a ridiculous amount, the lending company will almost certainly say no.
Your application was missing information
If your application is missing important information or proof, a lender may reject it right away and not look at it any further.
Before you send in your application, make sure you’ve double-checked all of the information you’ve included and uploaded any proof the lender needs.
You could also call the lender to make sure they have everything they need to process your loan application and that everything was sent.
Your loan purpose didn’t meet the lender’s criteria
Even though the money from a personal loan can be used for almost anything, there are still rules and regulations that borrowers must always follow.
For example, it is not recommended to get a personal loan to pay for school costs like tuition. It’s likely that the loan company has a policy that says you can’t gamble with the money or invest it in anything other than the company’s own products.
If the reason you give for needing the loan goes beyond what the lender has asked for, your application might be turned down.
Debt-to-income ratio is high
The borrower’s debt-to-income ratio, or DTI, is one of the main reasons why lenders turn down borrowers. To put it simply, a debt-to-income ratio compares a person’s monthly debt payments to their monthly gross income.
So, if you have a monthly income of $5,000 and monthly debt payments of $2,000, your debt-to-income ratio is 40%. It is often called your “back-end ratio” if it takes into account all of your debts, such as your mortgage, credit cards, car loan, school loan, and any other debts you may have. To figure out your “front-end ratio,” you only need to look at your monthly mortgage payment and your income.
Most of the time, these ratios are written from front to back. If your monthly gross income was $5,000, your monthly mortgage payment was $1,200, and your total debt payments were $2,000, your debt-to-income ratio would be 24/40.
