What to Do if Your Personal Loan Keeps Getting Declined

When you apply for a personal loan, there is always the risk of having your request denied. This can be due to several reasons, including a low credit score, incomplete paperwork, or having a limited income.  

This article will detail several personal loan denial reasons and cover the actions you can take after a loan denial.   

Common Reasons for Personal Loan Denials

Your personal loan could be denied for many reasons, some obvious and others less so. Below are some of the most common reasons for personal loan denials:

Low credit score

Borrowers will often run into loan denial problems because they have a low credit score. Falling below the limit set by a lender will make it challenging to qualify for a loan.

Missing information or paperwork

Applying for a personal loan involves a lot of paperwork, and sometimes you may lose some information in the shuffle. Carefully reading through the requirements and understanding exactly what the lender wants is key to qualifying for a personal loan. Be sure to review your application before sending it off. You could also consider contacting the lender directly to double-check their requirements.     

High debt-to-income ratio

A high debt-to-income (“DTI”) ratio could spoil your personal loan plans. This ratio compares your monthly debt total with your monthly gross income. For example, monthly debt payments of $3,000 on a monthly income of $5,000 leads to a DTI ratio of 60%. This may show lenders you could have trouble affording debt repayment. 

In general, your DTI ratio should be 35% or less. Many DTI ratios in this range indicate that you are an attractive borrower. 

Insufficient or unstable income

When deciding whether to offer a loan, a lender will investigate your recent income history to determine if you can pay them back. They may reject your application if they deem your income insufficient or unstable. From the lender’s perspective, a borrower with unreliable income has a higher chance of defaulting on the loan when the monthly payments become unaffordable.

Basic requirements are not met 

Basic requirements vary among lenders, but in general, you must have three primary qualifications. Before applying, make sure to review the lender’s requirements and ensure the following: 

  • You are at least 18 
  • You are a U.S. citizen (or have qualifying documentation that proves your permanent or non-permanent U.S. residency)
  • You have proof of income and meet the requirements for creditworthiness 

Incorrect loan usage 

You can take out a personal loan for almost any expense, but some restrictions exist. Be sure to read the lender’s requirements and understand the scope of their rules to avoid having your application declined.

Actions to Take After a Personal Loan Denial 

It is not the end of the world when your personal loan is declined. Review these options to learn the actions you can take to get a new personal loan. 

Review your decline notice 

The decline notice you receive includes the reasons for your loan denial. Review this notice and identify what needs to be fixed before you can resubmit your application.

Review your credit report 

If the loan decline notice cited issues with your credit score, try requesting a copy of your credit report to figure out the problem. To do this, you can go to AnnualCreditReport.com and request a copy. You are entitled to a free credit report every 12 months from each of the three major consumer reporting companies.  

Build your credit score before applying again

You may need to take time to build your credit score before applying for another loan. Remember to review how to build your credit score, including paying down your credit card balances and lowering your credit utilization rate.

Apply for a lower loan amount

If you’ve been denied a loan, the amount you requested may have been unrealistic, so seeking a lower loan amount may help your next application. Evaluate your budget and consider using a personal loan calculator to figure out how much you can afford to spend on a monthly payment.  

This will help you find a loan range you may be more likely to be approved for, help you get a picture of your current financial situation, and prevent you from taking on more debt than you can handle.

Pay down debt 

Your existing debt is important to lenders when they look at how much you owe relative to your monthly income. Paying down debt improves your DTI ratio and makes you look more trustworthy as a borrower. Doing this will also free up more monthly income to repay a new loan. 

You may consider the debt snowball method. With this approach, you pay off the smallest debt first, then the next-smallest debt, and so on. Conversely, the debt avalanche approach involves paying off the highest-interest debt first before paying off the next highest-interest debt. The avalanche method could help minimize interest costs, while the snowball approach offers short-term wins that could keep you motivated over time. 

Increasing income and paying down debt at the same time is the quickest way to improve your DTI ratio. 

Frequently Asked Questions

How long should you wait to reapply after a loan denial?

For several reasons, it may be wise to wait several months before reapplying for a loan following a denial, and experts recommend waiting six months to give yourself the best chance of qualifying. First, every time you apply for a loan, the lender conducts a hard credit inquiry that could temporarily lower your credit score. Being subject to several hard credit inquiries could harm your credit even more and make you less attractive as a borrower. 

It also takes a while to increase income and improve your financial situation. Building credit is not an overnight process, and lowering your DTI ratio can take time. 

If your loan application was declined because of an error you made on the application, you should contact the lender immediately to address the mistake and rerun the application.

How many times can you apply for a personal loan?

There isn’t a set number of times you can apply for a personal loan. But the more you apply, the more hard inquiries into your credit file you’ll be subject to, negatively impacting your credit score.  

How does a declined personal loan affect your credit report?

Getting declined for a personal loan does not show up on your credit report or impact it by itself. Again, the biggest concern is the hard inquiry into your credit file that occurs when you apply. The rejection itself does not affect your report.

Bottom Line

The loan application process has several pitfalls that could limit your ability to qualify. Careful planning and patience are vital in ensuring you can reapply for a loan after being denied. 

Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.


Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

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