Financial emergencies don’t come grandly announcing themselves. It is unexpected and takes you by surprise. You may need it for college course spending or repairing your home or car. Whatever the reason, the next obvious step that anyone takes is looking for loans. But getting a loan is even tougher nowadays, with the Feds raising the interest rates and banks restricting criteria, it is challenging to get loans these days and many people can’t get a loan. But you are not helpless, even if you need a loan been refused everywhere.
Recent data shows that over 76% of loan applications have been rejected this year. Ever since 2018, the lending market has taken quite a few hits. Transunion compiled a survey back in 2017. According to its consumer data, the personal loans of the second quarter of 2017 have reached about $107 billion, and the rate of defaulters, or the ones least likely to default, has risen from 3% to a little above 8%. According to its survey, personal loans, especially no-denial payday loans, are increasingly making their way into middle-class households and low-income families, where they are denied a loan.
Observations and Analytics
Low-income households have a higher chance of needing money for college education, home renovations, car repair, and consolidating their previous debts. They are also the most likely to get personal loans because they need a loan to be refused everywhere. Here are a few observations to support why your emergency loans, are declining.
FICO Credit Score
Fair Isaac and Company, or FICO, judges and publishes credit scores in America. FICO is an analytic company based in Montana. It has all information regarding a person’s banking and credit transactions and publishes a report giving them a number to signify their credit health.
According to Experian data, the average credit score of Americans was 714 in 2022, an increase of 687 from 2018. But overall credit score has remained stagnant over the year. Because of the rising inflation rate and lagging supply chain driving prices. The rising inflation rate could be one of the reasons why people are going towards loans but are getting denied.
They can’t get a loan because the average loan acceptance credit score is over 741. As Feds raise interest rates, most of the loans that are being doled out are high-risk loans. So, the ones with high credit scores or impeccable banking records are the ones who are being selected.
The Low Approval Rate of Personal Loans
If you are unable to get a loan, you are not alone. Most people in America are likely to get disapproved of loans, including personal ones. According to some data, only 23.88% are likely to get approved for loans; conversely, 76.12% are likely to get disapproved. So, it’s a hard reality for people who need money now.
Rejecting Loans Themselves
There’s also a quirky attribute of the American markets is that rejection on the part of the borrowers is high compared to other industrialized nations. This mainly happens because people are less likely to accept conditions they know will harm them in the long term.
As much as 64.14 percent of the people who apply for the loan do not go on to complete it.
Why Have You Been Declined for a Loan?
There are numerous reasons why you can’t get a loan. Understandably, having your loans declined when you need them the most is disheartening. In this section, we will figure out why.
A Low Credit Score
This is the most common loan denial reasons there is. A low credit score is a big turn-off for lenders. A low credit score signifies that you are an irresponsible borrower who will most likely not return your debt. This can impact a significant impact on the lender whom you’re approaching. Other factors include:
- The previous consolidation of your debt and your credit score.
- Untimely payments.
- A hard pull on your credit score.
- Maxing out on your credit line.
- Taking too frequent loans.
According to Experian data, the average credit score of Americans was 714 in 2022, an increase of 687 from 2018. But overall has remained stagnant over the year. The main reason behind this is the rising inflation rate and lagging supply chain driving prices. The rising inflation rate could be one of the reasons why people are going towards loans but are getting denied.
High Debt-to-Income Ratio
The debt to Income ratio (DTI) is the ratio between your monthly installment payments of debt and your monthly salary. This ratio is essential for lenders and financial installments like your bank to determine how likely are you to repay your loan. It is also used to determine how swiftly you can pay back the loan. It is calculated by dividing the monthly loan installments by your monthly income and multiplying by 100.
For instance, if your monthly payment is $500 and your monthly income is $3000, your debt-to-income ratio is approximately 16.66%. Typically, a debt-to-income ratio below 20% is considered healthy, and a 50% or above ratio is not considered feasible. So if you were wondering why you can’t get approved for a loan, this might be one reason. Here are different gradations for the debt-to-income ratio.
- If your DTI is 35% or lower, it is considered healthy, and you’re most likely to repay your loan.
- If your DTI is 36% to 49%, it is a fair score. You’ll likely repay your debt, but an unforeseen event can destabilize your financial health.
- A DTI of 50% or above is considered insufficient and not economically feasible.
So if you were wondering why can’t I get a loan, it might be because your debt-to-income ratio is above 50%.
If you have been denied a loan, it might be because of employment instability. Now, don’t get upset thinking no one wants to give me a loan, as lenders are generally more likely to dole out loans to people who already have a stable income. You’ll most likely be accepted for loans if you have a successful business with substantial revenue or if you are engaged in high-paying employment.
You are least likely to get a loan if you change your job and your salary fluctuates. You can also be rejected if you work as a freelancer with a flexible income. For example, if you are a freelance photographer and have been denied loan, the lender might have needed to trust your income source to be viable to repay the loan. The same can happen if your employment is contractual or seasonal. Your loan might be denied if your business also doesn’t have substantial revenue. One needs to be mindful of this before applying for a loan.
Not Meeting the Income Requirement
I was in a situation once, where I applied for a loan and got rejected. I wondered why no one wanted to give me a loan the whole time. Later I figured out that I didn’t meet their income requirements. This happens to a lot of people. Generally, traditional financial and banking institutions have strict income requirements.
While some payday lenders have a requirement as low as $1000 monthly income, most banking systems have a minimum income requirement of over a six-figure sum per annum. For example, if your banking institution has a minimum income requirement of $100,000 and you have an income of $64,000, you will get rejected.
Loan Purpose Mismatch
Sometimes, your loan reason mentioned to the lender doesn’t match the purpose you truly want to use it for. Lenders restrict loan expenditure so that money isn’t misused or abused. Your loan might be rejected if you lie about your financial intention regarding the disbursed money. Suppose, you take an education loan to complete your Honors degree. However, you invest the loan amount into the stock market. Loan companies monitor your expenditure, and will freeze your loan account if they detect malpractice.
Business loans are available from different banks if you need money to invest in the stock market. Online trading companies Forex.com and XTB offer loans to invest in the stock trading market and increase your portfolio. This money can however only be used in stock investment, and nowhere else.
Basic Requirement Failure
Every personal loan lender has a few basic requirements to fulfill. These are some of the reasons why you have been denied a loan:
- Requirement of being a US citizen.
- Minimum age requirement.
- Valid bank account.
You might not have fulfilled your requirements and of which the lender rejects your loan application.
You must submit a number of essential documents before applying for personal loans. For instance, you must have the following documents, if you don’t want any loan denial reasons that may obstruct your path.
- Your identity proof like your driver’s license.
- Your social security number.
- Your US passport or any other proof of citizenship.
- Immigration status, if applicable.
If you don’t have these documents, you can’t get a loan anywhere.
Asking Beyond the Loan Limit
Once in a while, when I need money now but can’t get a loan. My loans have often been rejected because my loan demand has surpassed their loan amount limit. Most personal loans have a limit on how much they can lend out a loan. Established banks can give you unlimited loans, but they have high criteria for those loans.
In non-traditional lending markets, with credit checks, loan amounts are unlimited. For instance, CashAdvance has no credit checks but offers loans from $200 to $10,000. Loan Pioneer also has the same principle. They offer a loan from $500 to $5,000. In such a situation, imagine you ask for a $5000 loan with no credit check, and you will be accepted. But if you ask for $11,000 worth of loan, but will be automatically rejected.
5 Actions You Can Take When You are Denied a Loan
Now that we have discussed why you can’t get a loan, let’s see what you can do after being declined.
Utilize Your Declined Notice to Get More Information
Every lender has to send you a rejection notice explaining why you have been rejected. If you are someone who incessantly complains about how I need a loan but keeps getting declined, review your declining notice, and try to understand why you have been rejected. This is called an adverse action notice. Under the FCRA, your lender must provide your reason for disapproval, or if they cannot dole out the loan you demanded. A few reasons for getting an adverse action notice are
- Low income
- Low credit score
- The lender cannot verify employment records
Analyze your shortcoming and improve upon them.
Improve your Credit Score
When you need a loan been refused everywhere, one of the most common reasons is your bad credit score. You need an impeccable credit score and banking history if you need a loan in an emergency. A low credit score signifies that you are an irresponsible borrower who will most likely not return your debt. This can impact a significant impact on the lender whom you’re approaching. Other factors include:
- Your previous debt consolidation and your credit score.
- Payment made past the due date.
- A hard credit score check.
- Exhausted credit score.
- Frequent borrowing.
Here are a few methods to improve your credit score.
- Maintain timely payments.
- Manage external debts.
- Don’t use your entire credit limit. Limit your spending to 30%.
- Don’t take loans unless absolutely necessary.
Find a Co-signer
Finding a co-signer is one of the best ways to not get denied. Co-signers are secondary signers who take responsibility for the loan beside the principal borrower. Because they get attached to the same loan, the co-signers credit score has a bearing on the borrowers. The loan’s payment status affects both the principal borrower and the co-signer.
However, if your co-signer fails to pay on time, and you don’t pay either, your and your cosigner’s credit scores are affected. However, having a co-signer has massive advantages.
- A co-signer can have a significant benefit if you have bad credit.
- If you’re young and don’t have a credit history, you can latch on to your cosigner’s credit score.
- Your income can be why you can’t get a loan. In such a situation, you can use your co-signers income as leverage.
Consider a Smaller Loan Amount
If you don’t want to get denied a loan, consider applying for a smaller loan amount. Most small personal loan companies or cash advance apps offer a small short-term loan amount. Also, asking for a small loan can offset the debt-to-income ratio. Debt to income ratio, or DTI, is the ratio between your monthly installment payments of debt and your monthly salary. This ratio is essential for lenders and financial institutions to determine how likely you are to repay your loan.
It is also used to determine how swiftly you can pay back the loan. It is calculated by dividing the monthly loan installments by your monthly income and multiplying it by 100. Typically, a debt-to-income ratio below 20% is considered healthy, and a 50% or above ratio is not considered feasible. So, maybe, no one wants to give me a loan because your borrowing amount is exorbitant. Try asking for a loan that is smaller and takes your income into account to increase your chances of approval.
Compare Different Loan Companies
When I have everything right and still wonder why can’t I get a loan, I always look for more options. Numerous companies offer loans under lenient conditions and affordable rates and ranges. For instance, Bad Credit Loans offer such loans. It is not a lender but a platform and a middleman where that connects borrowers to appropriate lenders. They offer state-of-the-art technology to gauge your need, connect to a suitable lender, and have a high chance of approval. Also, cash advance provides quick and easy loans to those in need. Here are a few comparisons:
|Lender||Loan Amount ($)||Minimum credit score||Pros||Cons|
|Bad Credit Loans||500- 10,000||No credit check||1. Large lender network
2. Fast service
3. Free of charge
|Cash Advance||200- 5,000||No credit check||Online support and free of charge||High APR|
|Loan Pioneer||100-5,000||N/A||1. Rapid approval
2. Customer support
|PersonalLoans||1000-35,000||600||Rapid approval and customer support||1. Requires High Credit score
2. High APR
|Upgrade||1000-50,000||No minimum credit check||1. Rapid approval
2. Flexible repayment terms
|Charge late fees|
Q1. What can you do if you can’t get a loan anywhere?
There are 5 steps you can follow if you don’t get a loan. They are:
- Speculate your decline notice.
- Improve your credit score.
- Find a co-signer
- Consider a smaller Loan
- Compare other options
Q2. How long after a loan rejection can you apply again?
The second application has no limitations or restrictions if you get rejected for a loan. You can apply almost immediately after your first rejection. Just ensure your lender doesn’t do a hard credit pull because you may lose a significant amount of credit.
Q3. What two things should you do if your lender rejects your loan?
The first thing you can do is review your financial history and consolidate your external debts. Next, you could look for other options and ask for a smaller loan.
Being rejected for a loan is very common. There are numerous reasons why your loans can get denied. Low-income households have a higher chance of needing money for college education, home renovations, and car repair, and an even higher chance of difficulty in previous debt consolidation. Whatever might be the reason, the next obvious step that anyone takes is looking for loans.
But getting a loan is even tougher nowadays. But there is no reason to be disheartened. The trick is to figure out why they have been rejected in the first place. Maybe your credit score is low, or your income is too low for the debt you ask for. Figure out the reason and adjust your flaws. If necessary, get a co-signer, and you will get a loan in no time.