Why Can’t I Get a Loan? 7 Common Reasons You May Be Denied

Financing isn't guaranteed and lenders can deny you a loan for many reasons. While underwriting specifics vary, lenders almost always consider these criteria during their application process — and failure to meet any of these asks is a common reason for a loan denial.

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1. Credit Scores

Your credit score is effectively a quantitative measure of your likelihood to repay a loan as agreed. Bad credit, a score of 600 or less among major models, results from past missteps, like late payments, loan defaults or collection accounts. It suggests to lenders that you might have an issue paying off debt in the future, which may give them pause why loans can get denied.

Most lenders require at least good credit for approval, with the best terms reserved for applicants with excellent credit scores, around 760 or higher.

2. Credit Reports

Your credit score is based on information in your credit report. Sometimes, that information may give a lender pause, even if your score is in an acceptable range.

For instance, you may have an old bankruptcy that needs more time to fall off your credit report. Alternatively, you may have too many recent credit inquiries, suggesting to the lender that you're taking on more debt than you can afford.

3. Income

Income requirements vary and aren't only restricted to a specific amount. Lenders also consider your employment status, length and type — such as self-employed vs. traditional employment.

4. Current Debt Levels

Your debt-to-income ratios (DTIs) is how much debt you have compared to your income. The more debt you have, the more your percentage goes up.

Lenders may reject applicants with a DTI over 36% and credit utilization rates of 30% or higher.

5. Loan Amount

Lenders might cap financing at a certain amount, which is typically $50,000 for personal loans, or require a minimum to borrow. If you're outside those windows, you may fail to get financing.

You can also get rejected if the amount you borrow isn't supported or justified by your current income.

6. Loan Purpose

Sometimes lenders have restrictions on what you can finance. For instance, you generally can't use a personal loan to pay for investments, college tuition, down payments or business expenses.

7. Collateral

Secured loans specifically require you to back a loan with your own funds or assets, so, in this case, not having enough funds saved can lead to a denial.

What To Do If You've Been Denied a Loan

Loan denials sting, but they're not absolute.

Find Out Why the Lender Denied Your Application

That way, you know what to fix and how to bolster your approval odds. Keep in mind that federal law requires lenders to provide written explanation of why they denied a loan — or your right to request this explanation — within 60 days of a rejection.

Check Your Credit Report

You can get free credit reports at AnnualCreditReport.com and dispute credit report errors by contacting the creditor or credit bureau. Look for mistakes or evidence of identity theft that could be driving your credit score down.

Consider a Co-Signer

Lenders are often more amenable to borrowers with bad credit or limited income when they have a willing co-signer.

Consider some of the downsides to being a cosigner before asking someone to add their name to your loan.

Improve Your Credit Score

You can improve your credit score by paying down debt and staying on top of your loan payment deadlines. Try to avoid applying for new credit for at least 45 days.

Lower Your DTI Ratio

Aim to get your DTI ratio below 36%. You can pay off high off high credit card balances or find new ways to generate income.

Research Other Lenders

All lenders have different underwriting standards. Some are more willing to lend to risky borrowers than others.

Similarly, if your denial is related to a loan mismatch — say you need $50,000 and the lender caps borrowing at $25,000 — you'll need to find a lender that's willing to lend the amount you need.

Try for a Smaller Loan Amount

Large loans are often reserved for borrowers with the highest credit scores and incomes. If your income or credit is thin, you can sometimes still get approval by asking for a smaller loan. This step can also help if your DTI is the problem.

Alternative Ways to Get Financial Help

Try these alternative financing sources if you have trouble getting a personal loan.

• Personal loans from credit unions: Credit unions often have different approval processes, so they can be more flexible than the larger banks, making your approval odds better. You can start your search with this list of the

  best credit unions for personal loans.

• Peer-to-peer lending platforms: These marketplaces anonymously match borrowers and lenders via a computer algorithm and can have easier application processes. However, there are drawbacks to peer-to-peer lending, most especially the high interest rates they impose.

• Side jobs or gig apps: The best side gigs include online instructor, bookkeeping, consulting and handy work.

FAQs

Why do I keep getting denied for loans with good credit?

Common reasons for loan denials among applicants with good credit include:

• An unstable employment history

• High debt-to-income ratio

• Too many new credit inquiries

• Recent late payments

• Accounts that have gone into collections

Can I get a loan if I have no credit history?

You can get a loan with no credit history, but your options might be limited. You might also have to accept a lower loan amount or a higher interest rate, as lenders reserve their best terms for people with a proven track record of using credit responsibly.

How long should I wait before applying again?

Consider waiting at least 30 to 45 days to reapply for a loan once denied, as that's the timeframe that lenders typically report to the credit bureaus. It gives you time to bring your accounts up to date and hopefully improve your credit score. That period can vary, however, depending on the reason for a denial. Plus, some lenders have their own requirements for how long you must wait between loan applications.

Will applying for multiple loans hurt my credit?

A lender may factor in new credit when evaluating your overall credit profile, so too many loan applications in a short period can be considered a red flag.

Can I get a loan without a job?

You can get a loan without a job so long as you demonstrate your ability to meet a lender's income requirements. If you don't have a job right now, try to find alternate source of income or consider getting a co-signer willing to share the financial responsibilities with you.