Personal loans can be an excellent method to receive the money you require for a significant purchase or to pay off debt, but occasionally things don’t go according to plan.
One out of every four personal loan applications is turned down, according to a survey by Experian.
Although it can be discouraging to have your personal loan application denied, it’s not the end of the road.
In this post, we’ll look at what to do if your personal loan application is denied and how to increase your chances of being accepted the following time.
What to Do if Your Loan is Rejected?
Review the Reasons for Rejection
Understanding the reasons your loan application was turned down is the first step in coming up with a solution.
It’s vital to analyze this information to determine where you can make improvements. Many lenders will include the reasons why your application was rejected.
A low credit score, a high debt-to-income ratio, or an insufficient income are frequently cited justifications for rejection. Low credit scores and high debt-to-income ratios are the most frequent causes of loan denial, per a report by the Consumer Financial Protection Bureau.
Improve Your Credit Score
You’ll need to focus on raising your credit score if that contributed to the rejection.
Although it could take some time, you can improve your score by reducing your debt, making on-time payments on all of your bills, and contesting any errors that appear on your credit report.
The best strategies to raise your credit score, according to a FICO study, are to wipe off debt and pay your bills on time.
Find a Co-Signer
You might be able to find a co-signer for your loan if your credit score is low but a friend or a family member has a good credit history.
A co-signer shares the loan’s risk with you and can increase your chances of being accepted. Using a co-signer can boost your chances of being accepted by up to 50%, according to a LendingTree study.
Look for Other Loan Options
It’s important to remember that there are alternative loan possibilities if your personal loan application is denied.
You might be able to obtain a payday loan with a high-interest rate or a secured loan utilizing a car or another item as collateral.
According to the study, Pew Charitable Trusts, to obtain the loan that best suits your needs, make sure to shop around and research the terms and costs of several lending options.
It’s vital to carefully consider the costs and advantages of these options because secured loans and payday loans have substantially higher interest rates and fees than personal loans.
Save More Money
You might need to increase your savings if your loan application was denied due to a high debt-to-income ratio to lower your debt and increase your chances of approval in the future.
It might take some time, but the effort will be worthwhile.
A study by Bankrate found that even a minor reduction in your debt-to-income ratio can significantly increase the likelihood that your loan application will be granted.
Although being turned down for a personal loan can be discouraging, it’s not the end of the road.
You can raise your chances of getting approved for a loan in the future by going over the reasons for denial, boosting your credit score, finding a co-signer, looking into other lending possibilities, and saving more money.
Keep in mind that perseverance pays rewards! You may change that rejection into approval with little time and effort.
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