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Facing rejection for a personal loan can be a frustrating and disheartening experience, especially if you have a pressing financial need. It’s easy to be discouraged and unsure of what to do next.
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Instead of taking the rejection personally, use it as a motivation to improve your financial standing. First, determine why you were denied the loan and then decide what steps you can take to prevent it from happening again.
We’ve broken down the steps you can take to increase your chances of securing a loan in the future.
1. Find out why
Before you can take steps to recover from a personal loan rejection, it’s essential to understand why your application was denied. Lenders typically consider factors such as credit score, income, debt-to-income ratio, and employment history. Request a detailed explanation from the lender regarding the specific reasons for the rejection. This information will be invaluable in addressing the issues and improving your chances of approval in the future.
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2. Fix your credit
A poor credit score is one of the most common reasons for personal loan rejections. Take proactive steps to improve your credit. Check your credit report and review it for any errors or discrepancies. Report any inaccuracies you find. Pay your bills in full and on time. This is the most effective way to boost your score. Aim to reduce your outstanding balances to below 30% of your credit limit. Lastly, avoid applying for new credit for six months since each hard inquiry will temporarily lower your credit score.
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3. Pay off debt
Lowering your debt-to-income ratio is crucial to improving your financial profile. Pay down high-interest debts like credit cards and loans. Reducing your outstanding debt demonstrates responsible financial behavior to potential lenders and so will up your odds of approval in the future.
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4. Increase your income
Lenders may be more willing to approve your loan if you can demonstrate a stable and sufficient income. Consider ways to boost your income, such as taking on a part-time job, freelancing, or pursuing higher-paying employment opportunities. There are plenty of side hustles out there for everyone in the current gig economy. Do a quick search and find a gig that suits your skills and schedule.
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5. Compare lenders
Not all lenders have the same approval criteria. A lot of online lenders specialize in providing personal loans to individuals with less-than-perfect credit. Most of these lenders look at the whole candidate – their employment history, if they are a homeowner, income – not just their credit score. Shop around and compare lenders, their interest rates, and terms. Look for those that are more accommodating to borrowers with bad credit.
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6. Pre-qualify before you apply
Pre-qualifying for a loan can help you gauge your eligibility without impacting your credit score. Many lenders offer pre-qualification processes that allow you to estimate your approval odds and potential loan terms. This can help you identify lenders who are more likely to approve your application.
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Final Thoughts
A rejected application is no reason to give up, it’s a chance to reevaluate your financial situation and proactively work towards improving it. Take a little time to understand why you were refused and address the factors that led to your denial before you apply again. Follow the tips stated above and you will find yourself an improved loan candidate with higher odds of getting approved in the future. Remember, that patience and persistence are key and as your financial situation improves, so will your access to credit.
