Why Can’t I Get a Loan? The Most Common Reasons

One of the most common questions we receive at Financer.com is “Why can’t I get a loan”, and today, we’ll dive into the most common reasons why you’re not getting your loan application approved.

Having your loan application rejected can be a serious blow, but understanding the reasons the lender declined you can help you qualify the next time.

When a lender rejects your loan application, they are required to explain why in writing. While this is helpful, the reason the lender gives may be a broad generalization.

If you can’t get a loan anywhere, some of the reasons lenders will reject you can include:

1. An error on your credit report. Errors, like unrecognized accounts or incorrectly reported late payments can lead to rejection.
2. Poor credit history: A poor credit history is a one-way ticket to rejectionville. Banks seek late payments, repossessions, foreclosures, and bankruptcies as key reasons to immediately reject your application.
3. Too much debt: Lenders look closely at debt-to-income ratios, as these indicate your ability to pay your debts with your salary. Home loans are particularly interested in this ratio. Check out our debt management for more on beating this issue.

Why Can’t I Get a Home Loan?

Each prospective homebuyer’s loan file is unique, but there are some common issues that may be to blame for your rejection.

The most common hurdle for not getting approved is your credit score.

This is one of the key items lenders look at when deciding to approve a loan, and having a poor credit history, which leads to a bad score, can end in a quick rejection.

If your spouse is on the loan, his or her credit will also impact your chances of the bank approving your application.

You might have an impressive credit score, but if your spouse’s score is lagging, it would be hard to obtain a loan with him or her on the loan.

One thing to keep in mind here is that your spouse’s credit will not impact any loan that he or she is not a part of, as the lenders only look at who is applying for the loan, not their family or household members.

It’s a common misconception that you marry your spouse and their credit history.

Other factors that determine your prospects of getting a home loan include:

• Debt-to-income ratio
• Steady and reliable income
• Liquid assets

Why Can’t I Get a Student Loan?

Getting financing aid for your education can be tricky. Lenders are all about risk, and they want to be confident you can pay back the loan.

As a college freshman straight out of high school, you likely have no experience handling finances, and lenders see this as a huge risk.

Many lenders require you to have a minimum credit score of 660 to 680, and it is rare to come out of high school with any credit score, let alone one that high.

This can make it hard to get financing as a student, but If your parents have a good credit score, they can help you out in a few ways.

They can add you as an authorized user on their credit card, which results in their payment history reflecting on your credit report. Alternatively, they can cosign a student loan for you.

Why Was My Business Loan Declined?

Getting a business loan can be difficult, but if your application is unsuccessful, it’s important to understand why your business loan was declined.

Here are a few reasons why:

Failure to understand your credit score. Many business owners don’t even realize they have a business credit score or where to get it.

Understanding your credit score and showing how to interpret it will help you gain insights into your application in the event that it was declined.

You can get your credit score from bureaus like Experian, Dun & Bradstreet, FICO, and Equifax.

A limited cash flow. Lenders also want to make sure that you are capable of repaying your loan each month, on top of being able to cover rent, payroll, inventory, and other expenses.

So, if you’re spending more money each month than what’s coming, then you need to solve that cash flow problem.

Limited collateral. Lenders typically aren’t willing to risk lending money to businesses without some sort of promise of reimbursement. In other words, they want a physical property that they can take if a loan is not repaid.

Create a collateral document that lists everything you can put up as collateral. This can be business and personal assets, as your business may not have sufficient assets to put up as collateral.

Minor Issues That Can Affect Your Loan Application

• You forget to include your work history or source of income.
• You earn less income than you claimed.
• You miswrote your Social Security number.

Always review your loan paperwork carefully before submitting it, as one wrong number or one missed line can result in a rejection. Sure, you can recover easily, but it’s an embarrassing moment nonetheless.

Make sure to double-check your Social Security number, job history, income, address, and name.

Also, always make sure you are 100% accurate with your income, as this is a huge part of getting a loan, and fudging your income can not only get you rejected, but it’s technically a fraud attempt.