Logo

What to Do If You’re Declined a Personal Loan

10 min read
what-to-do-if-declined-hero

If you’ve been turned down for a personal loan—don’t panic, and try not to worry. Facing a cash shortfall is daunting, and having your loan application denied can feel like a personal rejection. But the truth is, it's something that happens to many people.The first thing to know is that having your loan application denied doesn’t define you as a person. Lenders must set minimum qualifications for all loan approvals. If you happen to fall just shy of those qualifications, you may be declined. That doesn’t mean you aren’t smart with money or financially responsible. It just means you need to make a few financial adjustments to meet their threshold.And, just because your loan application was declined this time doesn’t mean it has to be your last chance. In fact, there is a lot you can do to improve your odds of being approved.

In This Article

  • 6 Common Personal Loan Rejection Reasons

  • 6 Actions to Take If Declined a Personal Loan

  • Advice from LendingClub Members

  • FAQs

6 Common Personal Loan Rejection Reasons

1. Bad credit history

When it comes to any loan—mortgage, student loan, or personal loan—credit history is the number one factor lenders consider. Your credit history is the primary way lenders evaluate how likely you are to repay (or default on) a loan. If you’ve had credit hiccups in the past (e.g., past due accounts, collections, bankruptcy) your credit score may not meet the lender’s minimum requirements.You can order your credit reports free of charge through AnnualCreditReport.com to see where you could make improvements to boost your credit score.

2. High debt-to-income ratio

Even if your credit history is OK, and you have made all your monthly payments on time, you may have your loan application denied if your debt-to-income ratio (the sum of all your debts divided by your monthly income) is too high. Generally, a low DTI (under 40%) signals to lenders a healthy balance of debt to income.To calculate your debt-to-income ratio, add up all your current debt—including credit cards, auto loans, and student loansand divide it by your income. If your DTI is too high, paying down debt drops your credit utilization ratio and improves your debt-to-income ratio, increasing your chances of approval.

3. Unstable employment history

Lenders generally want to see that any income listed on your application has been consistent, so they can assume it will remain so moving forward. This means if you have different pay stubs, recently changed jobs (in the last 60 days), or have freelance work from multiple employers, it may create a snag in your income calculations.If your income fluctuates because you’re self-employed or do seasonal work, that doesn’t mean your application will always be declined. While your paychecks may not be consistent or predictable, some lenders may be willing to look at your past tax returns so they can compare your income over a longer period of time.

4. Minimum income requirement not met

Along with income stability, lenders look for proof of income to verify you have the ability to repay what you borrow. If your income is below the lender’s threshold, you may be denied, or offered a loan for a lower amount.Make sure you include all forms of income in your next application, including any income from side gigs, investment accounts, or child support payments.

5. Loan purpose mismatch

Personal loans provide a lot of flexibility in how you can use the funds. However, some lenders may not allow you to use them for certain things like secondary education (i.e., college tuition), for making investments such as in stocks, or anything illegal or partially illegal (i.e., gambling).Make sure the loan application matches your purpose. For example, if you need funds for a professional certification or training, looking into a private or federal student loan may be more appropriate.

6. Missing information or paperwork

Loans almost always require several forms of paperwork, including employment and income information (including tax returns, pay stubs, or bank statements), a credit report, government issued ID and in some cases collateral documentation. If you are missing some of this information you are essentially guaranteed to get denied.Make sure all of your paperwork is in order before you apply for a personal loan again. You may end up not needing some of it, but better to have it handy just in case.

6 Actions to Take If You Were Declined for a Personal Loan

If your new loan application was denied for any of the reasons above, here's a short checklist of action items you can go through to improve your chances of being approved next time.

1. Review your decline notice.

The very first thing you should do is understand why you were declined for a personal loan. Any lender who denies loan approval is required to send an adverse action notice, which lists the reason(s) your application was declined. If you were turned down because of something on your credit report, this notice will tell you what in your credit report led to the decline, and the name of the credit bureau that reported the information. Because of the decline, you are eligible to receive a free copy of your credit report.

2. Review your credit report.

Check your credit report for errors and dispute any inaccuracies with the credit bureau about your personal finance history. At least one in five consumers have an error on their credit reports, according to a study by the Federal Trade Commission. For example, it’s possible someone else’s account information could have been included in your report. Or, if you filed for bankruptcy in the past, be sure your report does not include accounts that have been discharged.Keep an eye out for inaccurate account information. If you paid a bill on time that is reported late, for example, you can dispute that information with the reporting credit bureau. Closed accounts reported as still active could have a negative impact on your credit score if the account has negative information. Go over not only each account, but your account history as well.And always be on the lookout for any signs of identify theft such as unfamiliar accounts, purchases you didn’t make, and credit applications you didn’t complete.

3. Boost your credit score.

If your loan application was denied despite an accurate credit report, it could be your credit score is too low. Common reasons include:

  • Late payments:

    If you've missed payments, be sure to get caught up, and continue making on-time payments. Late payments can stay on your credit file for up to seven years.

  • Debt-to-income ratio:

    Are your credit balances high compared to your income? Pay down your debts as quickly as possible to lower your DTI and total credit utilization. (Struggling with debt? These creative ways to pay down debt can help you pay down your balances faster.)

  • Credit utilization:

    Are your cards close to their maximum limits? Remember, it's not just total credit utilization that matters, but each account limit. Try to bring all your credit balances below 30% for a score boost.

  • Recent inquiries:

    Have you been applying for credit a lot recently? Business loans, home loans, auto loans? Too many hard inquiries in a short period of time will hurt your credit score and may signal that you’re in financial trouble and need cash quickly. Limit applications to only what you need, and try again in a few months.

    Remember, a hard credit inquiry will impact your credit, but a soft inquiry won’t. Most applications are hard inquiries, while pre-approvals are soft inquiries. Learn more about the

    differences between a hard and soft inquiry.

  • Lack of credit history:

    If you just don't have enough credit history, consider becoming an authorized user on the account of a spouse or parent who has good credit. Make sure the account you sign onto has a good payment history—the older the account, the better. You may also consider a secured credit card, which lets you put down a deposit and borrow against it. The limit may not be high, but you’ll earn a credit score boost each month as you make payments on time.

4. Find a co-signer.

If you don’t have a steady income, have had some financial setbacks, or are still building a good credit history, applying with another person could help get your application approved. Applying with a cosigner or co-borrower might even help you secure a better loan than what you would’ve received on your own, i.e., a better rate, a higher loan amount, or both.

And there are additional factors to consider when applying for a joint personal loan. For example, both individuals are obligated to repay the loan, and both have rights concerning the funds. Here’s what you need to know about applying with a cosigner or co-borrower.

5. Apply for a smaller loan amount.

Consider asking for a smaller personal loan than what you need, or asked for previously. A smaller loan will appear less risky to a lender, and may help improve your overall DTI picture which could help you qualify.While applying for less than you need may delay reaching your goal as quickly as you had hoped, it could turn out to be the more financially responsible path. For example, if you’re able to start paying down debt with a smaller loan at a lower rate sooner rather than later, that's a step in the right direction. Always consider all possible options, and run the numbers given your personal financial situation.

6. Shop around.

Not all lenders have the same lending criteria and requirements. Rates, fees, and terms can also vary widely from lender to lender. By shopping around and comparing several loan offers against each other, you could end up saving hundreds, or even thousands, of dollars over the course of your loan. And after working through steps 1-5 above, you may want to try applying through a different lender simply to see if that makes any difference.

Advice From LendingClub Members

Many LendingClub members have been declined on their first try. But they didn't give up, and neither should you. As you can see, a lot of factors play into whether or not you are approved for a loan. We’re here to help you make the journey to better financial health. Here are a few inspiring stories from some of our members who didn’t give up:Very strict underwriting, but if accepted into the club? WOW! You are taken care of. Don't give up if you don't get in the first time or second. Keep going and be on the lookout, once you're in they'll be offering incredible options for your finances forever.
– Gary, a member from California*

My need for debt consolidation came about as a result of a difficult personal situation, and my profession and work structure is not typical. LendingClub was not able to get me approved about 9 months ago, but they did provide me with some advice and an invitation to reapply after 6 months. After taking the advice and keeping on plan…they closely reexamined my atypical conditions. Their professional and thorough process has made it possible for me to put difficult times in the rearview mirror.” – Jim, a member from Texas*

The first time I was so hurt when my loan was not approved. Then I got an email saying try again, so I did. Got a call a couple days later saying…you are approved. I can’t explain the joy of now being back in control.” – Ava, a member from Florida*

The first time I applied, I was denied because I was not in a position to handle a loan. A few months down the line, I re-applied and was approved for a number of different loans (varying amounts, different lengths of time, and slightly different interest rates/APR). I chose the one that was best for me. In a few days, I had my loan! I consolidated my credit card debt, and now I can afford to buy a car in a few months, and down the line, to save for a down-payment on a house.” – Kearston, a member from Pennsylvania*

See more LendingClub member reviews.

Personal Loan Rejection Reason FAQs

Still have questions? Some of these commonly asked questions may provide the answer.

1. Why does a personal loan get rejected?

Many factors go into determining eligibility for a personal loan. The most common reasons for rejection include a low credit score or bad credit history, a high debt-to-income ratio, unstable employment history, too low of income for the desired loan amount, or missing important information or paperwork within your application. Your loan could also be rejected if the purpose isn’t for an eligible reason—like trying to take out a personal loan for investing.

2. What should I do if my loan application is rejected?

Lenders are required to provide an explanation letter for rejected applications. If you’re rejected, read through the letter and determine what can be remedied. For example, you can work to improve your credit score or pay down high-interest debts to improve your debt-to-income ratio. You can also try to reapply with a cosigner—someone with a high credit score and a secure income—or opt for a joint personal loan, where co-borrowers share both the loan funds and responsibility for repayment. Both can increase your chances of approval.

3. Why was my loan declined?

Personal loans can be declined for many reasons, but in most cases it’s due to a poor credit score or unreliable credit history. Before reapplying, take a look at your credit report (you’re allowed one free report per year from Equifax, Transunion, and Experian). If your score is less than good (660 or less), try taking some time to improve it. If you see any errors on the report, dispute them immediately with the three major credit bureaus.

4. How can I avoid being rejected for a personal loan?

Lenders look at your credit score, debt-to-income ratio, income, employment history, and credit history as key markers in determining loan eligibility. If possible, work to improve your personal finances before applying or opt for a joint personal loan with a creditworthy co borrower to strengthen your application.

If you’re concerned about being rejected for a personal loan, consider checking your rate online first. Checking your rate won’t affect your credit score and can help determine eligibility before you apply.



*Individual results may vary.


You May Also Like

Related Resource Center
Too much credit card debt is when monthly payments exceed 30% of your income, leading to financial strain, difficulty covering essential expenses, and increased risk of defaulting.
Sep 23, 2024
8 min read
11 Signs You Have Too Much Credit Card Debt [+4 Ways to Pay It Off]
Credit scores are three-digit numbers ranging from 350 to 850 calculated from credit bureau-reported data that represent a snapshot of your credit health and history. A high credit score is an indicator to potential creditors there’s a higher probability you’ll repay your debt.
Aug 5, 2024
7 min read
Twenty20-294-1110x453
Using fixed, low-interest credit to refinance variable, high-interest credit card balances can be a smart financial move. This practice, known as debt consolidation, can simplify your monthly finances, make your payments more predictable, and save you money on the cost of borrowing.
Aug 1, 2024
4 min read
blog consolidatedebt
There are many reasons to consider a joint personal loan, including sharing the payment obligations, securing better financing terms, and improving your odds of approval. So, if your credit history is holding you back from getting favorable interest rates and terms on your own, having a co-borrower could help you qualify for a personal loan.
Jul 23, 2024
5 min read
How to Apply for a Joint Personal Loan
When you apply for a loan or credit card, many lenders may use the 5 Cs of credit—character, capacity, collateral, capital, and conditions—to determine your eligibility and the terms of your financing agreement. The 5 Cs of credit are measures of how you handle your current credit obligations and your ability to repay a loan. Understanding how each of these factors impacts a lender’s decision-making can potentially increase your odds of getting approved and scoring more favorable rates and terms.
Jun 26, 2024
6 min read
5CsOfCredit
Related Impact
From groceries and diapers to Halloween costumes for pets, nearly 60% of American consumers prefer to shop online for everyday items that make life more convenient, comfortable, and enjoyable. And with rising prices showing no signs of stopping anytime soon, we’re pleased to introduce StackitTM from LendingClub Bank—a new browser extension that automatically finds and rewards eligible members with coupons and cash back for extra savings at more than 15,000 favorite online retailers.
Nov 13, 2022
2 min read
blog header stackit 765x430 v1-1
Even in today’s low-yield, high-inflation environment, it’s essential to keep a certain amount of money in an easy-to-access checking or savings account for things like daily household and emergency expenses, or to meet short-term financial goals.
Oct 2, 2022
5 min read
LendingClub Rewards Checking Nationally Certified as Trusted, Afforda
Since 2007, LendingClub has been on a mission to deliver a world-class experience to all our members. This month we took a moment to reflect on the more than four million members who have chosen LendingClub as their partner to help them reach their financial goals.
Apr 19, 2022
2 min read
Illustration of large number 4 and letter M made up of colorful, tiny illustrations of ethnically diverse people
In March 2022, we hosted our first quarterly webinar where we celebrated our one-year anniversary as a digital marketplace bank. 
Mar 6, 2022
less than a minute read
Blog-post
LendingClub completed the acquisition of Radius Bank in February 2021. At that time, in addition to the direct-to-consumer deposit business, we inherited a fintech partner program, and several lending businesses. As we reach the one-year anniversary of the acquisition, and in conjunction with the conclusion of a strategic review of our business operations, we have made the decision to discontinue certain businesses that don’t fit our mission.  
Jan 2, 2022
2 min read
Man in blue button up shirt and glasses smiling
Related FAQ's
While funding issues don’t happen often, it’s possible a loan may not get fully funded.
Jun 7, 2023
less than a minute read
If you're having trouble making your payments, we encourage you to reach out to us before enrolling with a debt settlement company.
Jun 7, 2023
2 min read
Once you submit your application, we may ask you for additional paperwork to verify your information.
Jun 7, 2023
2 min read
Your annual percentage rate (APR) is the overall yearly cost of your loan, including fees and interest. The APR on LendingClub Bank loans ranges from 6.34% to 35.89%.
Jun 7, 2023
less than a minute read
Applying for a lending product is fast, easy, and confidential.
Jun 7, 2023
less than a minute read
Related Glossary
{noun} A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.
Sep 6, 2023
4 min read
{noun} The total annual cost to borrow money, including fees, expressed as a percentage.
Mar 21, 2023
3 min read
{noun} The amount of unpaid interest that has accumulated as of a specific date, either on a loan or an interest-bearing account or investment. 
Mar 21, 2023
4 min read
A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.
Feb 7, 2023
3 min read
{noun} An interest rate that remains the same for a set time, usually for the life of the loan.
Feb 4, 2023
3 min read

LendingClub Bank and its affiliates (collectively, "LendingClub") do not offer legal, financial, or other professional advice. The content on this page is for informational or advertising purposes only and is not a substitute for individualized professional advice. LendingClub is not affiliated with or making any representation as to the company(ies), services, and/or products referenced. LendingClub is not responsible for the content of third-party website(s), and links to those sites should not be viewed as an endorsement. By clicking links to third-party website(s), users are leaving LendingClub’s website. LendingClub does not represent any third party, including any website user, who enters into a transaction as a result of visiting a third-party website. Privacy and security policies of third-party websites may differ from those of the LendingClub website.

Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.

A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $19,584 for a term of 36 months, with an interest rate of 10.29% and a 6.00% origination fee of $1,190 for an APR of 14.60%. In this example, the borrower will receive $18,663 and will make 36 monthly payments of $643. Loan amounts range from $1,000 to $40,000 and loan term lengths range from 24 months to 60 months. Some amounts, rates, and term lengths may be unavailable in certain states.

For Personal Loans, APR ranges from 9.57% to 35.99% and origination fee ranges from 3.00% to 8.00% of the loan amount. APRs and origination fees are determined at the time of application. Lowest APR is available to borrowers with excellent credit. Advertised rates and fees are valid as of July 11, 2024 and are subject to change without notice.

Checking a rate through us generates a soft credit inquiry on a person’s credit report, which is visible only to that person. A hard credit inquiry, which is visible to that person and others, and which may affect that person’s credit score, only appears on the person’s credit report if and when a loan is issued to the person. Credit eligibility is not guaranteed. APR and other credit terms depend upon credit score and other key financing characteristics, including but not limited to the amount financed, loan term length, and credit usage and history.  

Unless otherwise specified, all credit and deposit products are provided by LendingClub Bank, N.A., Member FDIC, Equal Housing Lender (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Credit products are subject to credit approval and may be subject to sufficient investor commitment. ​Deposit accounts are subject to approval. Only deposit products are FDIC insured.

“LendingClub” and the “LC” symbol are trademarks of LendingClub Bank.

© 2024 LendingClub Bank. All rights reserved.