A personal loan may be a fantastic method to pay off high-interest debt, cover home repairs and other costs. Personal loans may be a better alternative than using a credit card since, depending on your credit, they may provide lower average interest rates.
Lack of a strong credit score, along with other variables, might result in high quoted interest rates – assuming you are accepted at all. However, understanding why you were denied and what you need to address will help you get approved for future loans and access better rates. Here are four common reasons why personal loans get denied and what you can do. Read on!
1. Your Credit Score is Too Low
According to Experian, the average FICO score for a personal loan application is 710, while the average credit score for someone denied a loan is 668. The lower your score, the higher the chance of being declined because lenders want to minimize their risks when approving loans. You want a score at or near the national average to get a personal loan.
To build your credit score, check your credit reports from all three major credit bureaus — Equifax, Experian, and TransUnion. Fix any errors you find, dispute accounts you don’t recognize, and pay down your balances.
If, after you’ve paid down your balances and disputed any errors, you’re still having a hard time raising your credit score, consider using credit cards to build your score. Try to pay off your bill in full every month. You’ll avoid paying interest and increasing your credit score simultaneously.
2. Low Income
Personal loan applicant income is a commonly used criterion when deciding whether to approve or deny a loan. If you’re making less money than the average borrower — $65,461 — you’re more likely to be declined.
This could result from the length of your credit history, too. The longer your credit history, the more accurate your credit score. If you’ve had your credit card for a decade, you’re less likely to be declined because you have a more extended history.
But even if you have a great credit score, you’re still more likely to be declined if you have a low income. To resolve this, you could consider asking for a shorter term on your personal loan or a lower amount.
3. You Have Too Many Pending Loans
If you’ve already applied for multiple loans, you may be declined for a different reason. If you’ve applied for and been denied multiple loans, your credit report shows that you’re having a hard time paying back your loans.
Lenders may be concerned about declining your request for another loan and worry that you’ll be unable to repay the payments. Pay off your current loans and be sure that you have enough money to pay off your new loan — especially if you’re applying for a personal loan with a high APR.
4. You Don’t Have a Regular Income
If you’re self-employed or unemployed, you could be declined for a different reason. Your income could have a significant impact on whether you’re approved for a loan.
If you’re self-employed, you’ll have to prove that you make enough money to pay back the loan and still be able to pay your bills.
If you’re unemployed, you’ll need to provide documentation to prove that you’re actively searching for a job and have the cash to pay back your loan. You’ll also have to show that you have money to pay your other bills and have a steady income source when you find a job.
When you apply for a personal loan, you always want to be prepared to show your income, assets, and your credit score. You can also build your credit rating before you apply for your loan. This can help you be approved for a loan and could result in you getting a better interest rate.
If you are looking for the best personal loans in Murfreesboro, TN, you’re in the right place. Hometown Finance has served the surrounding area since 2001. We believe in the value of solid relationships and approach lending through an understanding lens. Our goal is to provide installment loans to those who need help. Contact us to learn more or apply online now!