Reasons Your Bank Loan Was Denied

12/24/19 Ricky Baizas

If your personal loan application submitted to a bank is denied, it can leave you puzzled. Even consumers with strong credit histories can be denied loans, leaving them asking “why was I denied a bank loan?”*


The truth is banks are very selective when approving personal loan applications. They typically have lower approval rates than other types of lenders for a variety of reasons, meaning it’s difficult to meet a bank’s personal loan criteria.

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However, if a personal loan application is denied, consumers have the right to know why. The Equal Credit Opportunity Act states that a lender is legally required to state the exact reason a loan-seeker’s application was rejected. The Act also states that the lender must inform denied applicants the reason for the denial within 60 days. However, occasionally this doesn’t happen unless the applicant pursues it.

The most common reasons banks deny personal loan applications include:


Denial Due to Credit Score

Banks often deny loan applicants due to an applicant’s poor or even slightly-below-average credit score. In some cases, banks simply have credit-score thresholds in place and the failure to meet these thresholds can result in immediate denial. If this is the case, the bank is required to tell the applicant which credit bureau was consulted. The bank is also required to inform the applicant of his or her credit score. Prospective borrowers have the right to obtain a free copy of their credit report following the denial. Consumers should examine the report to ensure there is no false information in their credit history. If there are inaccuracies, they should contact the credit bureau, file a dispute, and work to have the error remedied.

Insufficient Income

Applicants for a personal loan have to prove their income in order to be approved by the lending bank. This is to ensure applicants have the financial means to repay the borrowed money. Those who do not make enough money, and cannot document other sources of income, are frequently denied. Those who have lost a job, or even recently started a new job, may be denied as well. Self-employed applicants are usually asked to submit evidence documenting a steady flow of business. They also might have to prove there are secured, long-term contracts in place to ensure stable income. Shortfalls in any of these scenarios can result in banks denying loan applications.

An Abundance of Debt

Personal loan applicants saddled with excessive debt commonly find their loan applications denied by traditional lenders. Perhaps the applicant has taken on recent debt in the form of a car loan, a mortgage or a student loan. Rapid changes in the applicant’s debt profile can make lending banks uneasy about extending additional credit. In some instances, reapplying within a few months following the first loan application may prove successful as it allows the applicant time to establish trustworthiness.

Poor Documentation

Banks typically require an abundance of documents when considering a loan application. Applicants who fail to submit any needed documentation may be denied. A denial can also be issued if there are discrepancies between the documents that the applicant provides and the information the lender confirms. For example, if an applicant claims they earn $75,000 per year but the bank’s research shows the individual earning $45,000, a rejected loan application is likely. In such a scenario, the applicant may be given a chance to provide additional proof to document his or her claim, but failure to do so would likely result in a rejected loan application.

A Personal Loan May be the Solution

Once a denial is issued for your personal loan application at the bank, borrowers may be wondering, “Where can I go to get a loan?” Instead of tapping into home equity, or borrowing against retirement accounts, it may be more financially prudent to apply for a personal loan through a non-traditional lender. A LoanMe personal loan can provide as little as $2,600 or as much as $100,000 in a timely manner. The application process is simple and quick. Applicants will find out if they are approved in as little as one day. Before securing a LoanMe personal loan, applicants will always know exactly how much is owed each month so they can budget in advance.


*This article has been prepared for general information purposes only. The information presented is not legal, financial, tax or accounting advice, is not to be acted on as such, and is subject to change without notice.
Credit approval is subject to LoanMe’s credit standards, and actual terms (including actual loan amount) may vary by applicant. LoanMe requires certain supporting documentation with each new application. If you have any questions regarding this, call us at 844-311–2274. California loans are made pursuant to LoanMe’s California Department of Business Oversight Finance Lenders Law License #603K061. LoanMe also offers loans in certain other states which may have higher minimum loan amounts.
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