If I Get Declined for a Personal LoanIf you ever get declined for a loan, through our lenders, it is not the end. There is no shame in being denied for a loan — it happens to many people, even those with high credit scores (for various reasons).
Below are some of the more common reasons loans get denied. This will help you better prepare before applying. However, if you get declined, we do not walk away. There are several techniques we have in place to get you approved. From our network of lenders that do not use your credit to approve you (max loan $37,000), to our credit enhancement partners that have turned many of our applicants declines into approvals. Check them out by clicking here. |
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Credit history
If your credit history is littered with late payments or contains a serious derogatory item, you are statistically much more likely to default (not repay) your loan and lenders will probably decline your application.
Once we get you approved for your loan, pay it on time every month. Good payment history can improve your credit report and score in a few months.
Debt-to-income (DTI) ratio
Your DTI is the relationship between what you earn and what you spend. The higher your DTI, the greater the risk to your lender.
Your DTI equals your monthly housing payment plus the prospective payment for your personal loan and accounts like credit cards, auto loans, student debt, etc. — but not living expenses like food and utilities. Divide this total by your monthly gross (before tax) income. If you earn $4,000 per month and your payments are $2,000, your DTI is 50%. That’s about as high as most lenders will approve, and some set their maximum DTI much lower — 36% is typical. We have ways to work around this issue if you face this problem.
Patchy employment history
Lenders want to know that your income is stable and ongoing. If you spent six months as a personal trainer, took several months off, and now you’re selling real estate, lenders may doubt your ability to repay a loan.
The least “forgivable” job changes are those that take you from salaried to commissioned, salaried to self-employed, or to a field in which you have no experience. Avoid those before applying for the loan.
Income below minimum threshold
Loan providers examine your DTI when you apply for a loan. But most of them also set a minimum income. The reason for this is that with a low income, you have very little wiggle room if you experience an income interruption or a financial emergency.
However, since opening a beauty supply store should increase your earning potential, we have relationships with lenders that are relaxed with this requirement.
Minimum income thresholds can vary widely among lenders. One national lender sets its minimum at $12,000 per year, while another puts its minimum at $45,000 per year.
Lack of paperwork
Loan providers don’t just take your application and hand you money. We hold your hand through this process, however. Underwriters may request additional items after reviewing your file.
If you don’t supply us everything the lender needs within minimal days of application, you’re likely to receive a notice of denial due to an incomplete application. Note that this can even occur if a third party doesn’t respond in time — if, for instance, your landlord or employer fails to return a request for rental history or employment verification.
You can head this off by promptly submitting every document and every bit of information the lender requests. It’s probably a good idea to check in with us to make sure that the underwriter is not waiting for anything. If a third-party verification is outstanding, contact the party and ask them to return it to your lender ASAP.
Credit score too low
Most lenders set a minimum credit score for loan eligibility. If your credit score falls below this number, you won’t get a loan. You can have a perfect credit history and a low credit score for a couple of reasons — you don’t use credit enough or you use too much.
Having too little credit history makes it difficult for lenders or credit reporting agencies to see how you manage debt. And your credit score will reflect that, unfair as that may seem. The other reason you can have a low score is high credit utilization. If you use more than 30% of your available credit, your score takes a hit. And if you’re close to being maxed out, you’ll see a major decline.
Fortunately, we have options to help with your score and overall profile. And if you have high utilization, we can pay down your loans or get you higher credit card limits.
Don’t give up!
Because we won't either!
If your credit history is littered with late payments or contains a serious derogatory item, you are statistically much more likely to default (not repay) your loan and lenders will probably decline your application.
Once we get you approved for your loan, pay it on time every month. Good payment history can improve your credit report and score in a few months.
Debt-to-income (DTI) ratio
Your DTI is the relationship between what you earn and what you spend. The higher your DTI, the greater the risk to your lender.
Your DTI equals your monthly housing payment plus the prospective payment for your personal loan and accounts like credit cards, auto loans, student debt, etc. — but not living expenses like food and utilities. Divide this total by your monthly gross (before tax) income. If you earn $4,000 per month and your payments are $2,000, your DTI is 50%. That’s about as high as most lenders will approve, and some set their maximum DTI much lower — 36% is typical. We have ways to work around this issue if you face this problem.
Patchy employment history
Lenders want to know that your income is stable and ongoing. If you spent six months as a personal trainer, took several months off, and now you’re selling real estate, lenders may doubt your ability to repay a loan.
- A co-signer can be helpful in this situation if you are otherwise eligible for financing (credit history and DTI).
- We attempt to tie your jobs together (similar responsibilities, same industry), or show increasing money or responsibility with different jobs, write a letter of explanation for the underwriter.
- In some cases we need you several years of tax returns and a letter of explanation if you can show that your income has been stable or increasing for several years despite job-hopping.
The least “forgivable” job changes are those that take you from salaried to commissioned, salaried to self-employed, or to a field in which you have no experience. Avoid those before applying for the loan.
Income below minimum threshold
Loan providers examine your DTI when you apply for a loan. But most of them also set a minimum income. The reason for this is that with a low income, you have very little wiggle room if you experience an income interruption or a financial emergency.
However, since opening a beauty supply store should increase your earning potential, we have relationships with lenders that are relaxed with this requirement.
Minimum income thresholds can vary widely among lenders. One national lender sets its minimum at $12,000 per year, while another puts its minimum at $45,000 per year.
Lack of paperwork
Loan providers don’t just take your application and hand you money. We hold your hand through this process, however. Underwriters may request additional items after reviewing your file.
If you don’t supply us everything the lender needs within minimal days of application, you’re likely to receive a notice of denial due to an incomplete application. Note that this can even occur if a third party doesn’t respond in time — if, for instance, your landlord or employer fails to return a request for rental history or employment verification.
You can head this off by promptly submitting every document and every bit of information the lender requests. It’s probably a good idea to check in with us to make sure that the underwriter is not waiting for anything. If a third-party verification is outstanding, contact the party and ask them to return it to your lender ASAP.
Credit score too low
Most lenders set a minimum credit score for loan eligibility. If your credit score falls below this number, you won’t get a loan. You can have a perfect credit history and a low credit score for a couple of reasons — you don’t use credit enough or you use too much.
Having too little credit history makes it difficult for lenders or credit reporting agencies to see how you manage debt. And your credit score will reflect that, unfair as that may seem. The other reason you can have a low score is high credit utilization. If you use more than 30% of your available credit, your score takes a hit. And if you’re close to being maxed out, you’ll see a major decline.
Fortunately, we have options to help with your score and overall profile. And if you have high utilization, we can pay down your loans or get you higher credit card limits.
Don’t give up!
Because we won't either!
