It doesn’t matter how badly you need help in an unexpected emergency, getting rejected is a possibility any time you apply for a personal loan. But you can lower the chances you get denied by understanding why you might get rejected in the first place.
Here are four common reasons why people get rejected and what you can do about it.
1. Your Credit Score is Too Low
Any legitimate lender will check your credit before they approve your application. This check shows them how you’ve handled loans in the past to give them an idea of how you’ll handle their loan, if they approve it.
Some online direct lenders may reject you at any sign of trouble, so poor credit could be the reason why your application gets thrown out.
Luckily, not all lenders have the same opinion about bad credit.
A lender like MoneyKey may be willing to work with bad credit borrowers, provided you meet other eligibility requirements. You can find out what those requirements are before you apply for an installment loan through MoneyKey by checking out the lender’s homepage.
2. You Made a Mistake
Accidentally inverting your social security numbers or forgetting a digit in your bank account number can result in rejection. The same goes for spelling mistakes in your address or employer info.
That’s because online direct lenders use this information to confirm you are who you say you are. A minor error casts doubt on your identity if things don’t add up. Your lender may not even be able to conduct a credit check if the mistake is big enough.
Luckily, this problem has an easy fix: simply reapply and review your application for mistakes before sending it off.
3. You Already Have Too Much Debt
Another reason why you might be denied funding is to do with your existing debt. Some online direct lenders check your debt-to-income ratio.
A debt-to-income ratio shows how much of your net pay goes towards existing lines of credit, installment loans, auto loans, and credit cards. Generally speaking, lenders want to see a DTI of 40% or lower.
Anything above this threshold tells a lender a lot of your income is tied up with other loans. Realistically, you may not be able to afford another loan on top of everything else.
Paying down debt is one way to lower your DTI ratio. But it may be an impossible target if you’re in the market for another loan.
A more realistic option might be to get a second job. This extra money will lower your DTI, even if you do nothing to lower your debt.
4. You Don’t Earn Enough Money
You may want to boost your income, even if your lender doesn’t check DTI.
Some online direct lenders review your employment history and pay schedule to determine if you get paid enough to pay them back on time.
If you earn less than what you need to juggle essential bills and their loan payments at the same time, a lender may reject you.
Increasing your income isn’t easy, but it’s worth looking into. This thinking can set you down a path that eventually leads to a new job, career, or a side gig that pays big bucks.
If you get rejected, don’t take it personally. There’s usually a reason why a lender denies loans to borrowers. Find out why to figure out what you need to do to see an approval next time.