What to Do if Your Personal Loan Application is Denied

If you recently filled out a loan application only to learn that you were declined, you’re not alone. Whether the personal loan application was with us at OneMain Financial or another lender, many factors go into the loan approval process.

Don’t be discouraged — just because you received one rejection doesn’t mean you’ll be unable to get a loan. Let’s take a look at some of the top loan denial reasons and learn how to improve your chances of getting a personal loan.

Common reasons why your application may have been declined

A variety of reasons could have contributed to your loan application being declined, such as:

- Failure to complete an incomplete application after being asked to do so

Sometimes, a loan denial reason is as simple as forgetting a “0” in your birth date. Be sure to double-check your application to make sure all the information is correct. If the lender asks you to complete an incomplete application and you fail to do so, your loan application will most likely be declined.

- Insufficient income

If your disposable income is considered insufficient to afford your monthly payment, you may be turned down for a loan, or receive a counteroffer, an amount that’s less than what you applied for. If not having enough income is an obstacle you’re facing, you can discuss different loan options with the lender, such as using collateral or having a cosigner. Keep reading to learn more about these options and how they could improve your chances of getting a personal loan.

- High debt-to-income ratio

Your debt-to-income ratio (DTI) is the amount of all your monthly debts divided by your income. If lenders feel you have too much debt compared to your income, your personal loan application may be declined.

- Credit utilization

Credit utilization is the total amount of credit you have compared to the total amount of credit you’ve used. So, if you have only one credit card with a $5,000 limit, but have $4,750 of debt on that card, then you would have a high credit utilization. This could be one reason why you’ve had trouble getting approved for loans. Generally speaking, you should strive to use 30% or less of your total credit.

- Lack of collateral

Loans that require collateral are called secured loans. Secured loans are loans backed with something of value that you own, like a car, in the event you’re unable to repay the loan. Backing up, or securing, your loan could increase your chances of getting approved and could even unlock better terms compared to an unsecured loan. However, having collateral doesn’t mean the lender will consider it sufficient. If the value of the collateral is less than the loan, lenders may consider it insufficient.

How to improve your chances of getting approved for a personal loan

Just because your loan application was declined doesn’t mean the future isn’t bright. There are a lot of strategies you can use that may improve your chances of getting a personal loan and improve your overall financial well-being.

Short-term strategies

• Use Collateral
  If you were unwilling to provide collateral in your original unapproved application, you may want to reconsider if you reapply or apply with a different lender. Collateral may be a great way to help secure the loan and unlock more options. Keep in mind that if you do not pay back the loan, the item you offered for collateral could be forfeited.

• Get a creditworthy cosigner
  If you were declined a loan because of your credit history and/or income, then you may want to reapply with a creditworthy cosigner. A cosigner is someone who agrees to sign a loan or credit agreement with the primary borrower. This person should have a stronger credit history and/or a more favorable credit score than you do. From the lender’s standpoint, loans with a cosigner are less risky because of two potentially responsible parties. Be aware that some lenders do not allow cosigners. If you decide to ask someone to cosign, be sure they’re aware of all the risks involved. Have an honest conversation about the shared impact if you miss any payments.

Long-term strategies

• Decrease your existing debt
  If you currently have outstanding loans or credit card debt, work on repaying them to decrease your debt-to-income ratio (DTI). Learn the best strategies for paying off debt.

• Increase your income
  While this may seem easier said than done, there are a lot of ways to make extra money like picking up a side gig, working a few extra hours or asking for a pay increase. This could also help decrease your DTI and increase your chance of getting approved for a loan.

• Build your credit
  Good credit could make getting approved for a personal loan easier in the future. Aside from always paying your bills on time, there are several ways to improve your credit.

When to reapply for a loan if you’ve been declined

If you keep getting declined for loans, there are several strategies you could implement to improve your chances of getting a personal loan, as outlined above.

Many lenders often allow you to see if you’re prequalified for a loan, which won’t impact your credit score at all. Prequalification lets you consider your options and budget before you commit to a loan. At OneMain, it only takes a few minutes to check for and see prequalified offers.¹

Applying for a loan with one or two other lenders is not preferable — there are downsides to multiple lenders looking at your credit history. Applying too many times within a small window of time could trigger a red flag to potential lenders, so avoid if possible.

If you plan on applying to different lenders for the same type of loan, it’s generally best to do so within a 14- to 45-day window so it only counts as one hard inquiry.² If you keep getting denied for loans by multiple lenders, it may be best to work on the long-term strategies and then wait until your credit improves to reapply.

You might also be wondering if getting declined for a loan could hurt your credit — well, the short answer is, not necessarily, unless you’re getting declined repeatedly. According to Experian, a hard inquiry into your credit knocks less than five points off your credit score, and that dip typically won’t last long.³ Hard inquiries usually remain on your credit report for two years.⁴ Your credit report will never indicate whether a loan application was denied, so getting rejected for a loan won’t significantly hurt your credit score.

Be patient and stay positive

We understand that the loan application process can be stressful, and we understand your disappointment if your application from OneMain or another lender was declined. Remember that your financial picture could change over time.

If you need one-on-one help rebuilding your credit, consider contacting a non-profit credit counseling service such as the National Foundation for Credit Counseling at 1-800-388-2227 or www.nfcc.org.

We also offer free resources to help you brush up on your money know-how, like:

• Creative ways to stretch your budget or improve your credit score
• Opportunities to learn about credit, expense management and budgeting
• Tools to help you calculate ways to budget, save and manage payments

When you're ready, check to see if you prequalify for an offer at OMF.com/prequalification (this won’t affect your credit score), and then let’s work together on your next steps.

---

Source:

1. Timing may vary based on: when you submit your application, how many documents are needed for approval, how long it takes for OneMain to receive, review and verify those documents, and whether your loan is secured by collateral, among other factors.
   

2,3,4. https://www.experian.com/blogs/ask-experian/what-is-a-hard-inquiry/

*This article has been updated from previous posting in 2020 and 2022. Melina Duffett contributed to previous versions of this article.