What to Do If You Get Rejected for a Loan
What to Do If You Get Rejected for a Loan
Rachel Christian, CEPF® Senior Writer AUGUST 2, 2023
Some of the links in this post are from our sponsors. We provide you with accurate, reliable information. Learn more about how we make money and select our advertising partners. So, you’ve applied for a loan, and unfortunately, things didn’t go as planned. Well, you’re not alone.
In June 2023, the overall rejection rate for credit applicants increased to nearly 22% — its highest point since June 2018 — according to a report by the Federal Reserve Bank of New York.
The increase affected people in different age groups and was highest among people with credit scores below 680, the report found.
So what happens when you get rejected for a loan? We’ll explain what it takes to get a loan, why lenders might slam the door on your application and most importantly, how you can improve your odds and even snag a loan with bad credit.
Requirements for a Loan
You’re eager to get a loan, but do you know what lenders look for? Let’s start with the basics.
Whether you’re looking to a buy a house or get a personal loan, you typically need to meet these requirements:
Good Credit Score: Lenders use your credit score to assess your risk as a borrower. A good credit score usually falls in the 670 to 739 range. The higher your score, the better your chances of approval.
Steady income: Lenders need to see that you have a stable income to repay the loan, such as a regular job or self-employment income.
Low Debt-To-Income Ratio: This is the proportion of your monthly debt payments compared to your monthly income. A lower debt-to-income ratio signals better financial health. Lenders usually look for a DTI of 40% or less.
Positive Credit History: A solid credit history shows lenders you’ve managed credit accounts responsibly in the past.
Collateral: With a secured loan, an asset (like a car or home) acts as collateral to help offset the risk. This can be an option if you have bad credit or want a lower interest rate.
Is this your first time applying for a loan? Check out our explainer on how loans work.
6 Reasons Why You Might Get Denied for a Loan
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