What to Do If Your Loan Application Was Declined

Applying for a loan is often part of a major life moment — buying a car or a home, or making another large purchase.

If your application is denied, it can be frustrating, but it’s not the end of the road. Loan denials are common, and lenders are required to explain why they denied your loan under the The Equal Credit Opportunity Act (ECOA) or the Fair Credit Reporting Act (FCRA).

Here’s what to know and what to do next if your application for a personal, auto, mortgage, or home equity loan was declined.

1. Find out why you were declined

Your first step is to find out why your loan application was denied. Different loan products have different approval requirements. For example, approval criteria differ between secured loans, such as auto loans, and unsecured products like personal loans. A secured loan is backed by collateral, such as the car you purchased using the loan. If you default on the loan, the lender can take back your car and sell it, to recoup their loss. A non-secured loan has no collateral to protect the lender, so it may require a higher credit score.

If your loan application was denied, the lender is required to send an adverse action notice, which explains why you didn’t get approved. You’ll typically receive this notice 7 to 10 days after your loan is denied.

Common reasons for loan denial include:

• an incomplete loan application
• incorrect information on the loan application
• a low credit score
• late payments
• a high debit-to-income ratio (too much debt compared to your income)
• too many recent credit inquiries
• bankruptcy or foreclosure
• unstable or insufficient income
• asking to borrow more than you can afford
• not meeting the basic loan requirements (such as being over age 18)
• your intent for the loan doesn’t match the lender’s

If your loan is denied and the adverse action notice includes information that seems inaccurate, reach out to the lender to discuss it.

2. Check your credit report

If your loan is denied, you’re eligible for a free copy of your credit report. (In fact, anyone in the US can request a free credit report each week.) It’s important to review it: In a recent study by Consumer Reports and WorkMoney, 44 percent of consumers surveyed found at least one error in their credit report, with 27 percent finding errors that were serious enough to impact their credit score.

Common issues include:

• someone else’s account information
• on-time payments flagged for being late
• closed accounts reported as active
• unrecognized debt reported to collections

You can report or dispute any errors and inaccuracies to the credit bureau.

3. Fix your credit score

If your credit report is accurate, then you’ll need to improve your credit score.

One way to do that is to get caught up on any late payments and continue to make your payments on time. Payments that are 30 days late can stick to your credit file for up to seven years.

There are also products that can help you rebuild your credit by increasing your score. Check out our ScoreUp^® Credit Builder Loan and our secured credit card, or talk to us to learn more about other ways to rebuild your credit.

Are loans becoming harder to get?

Nearly half of Americans who recently applied for a loan were turned down, according to Bankrate’s 2025 Credit Denials Survey. Higher interest rates have led financial institutions to tighten their lending standards, one reason it’s now harder to get a loan.

4. Pay down your debt

If your credit balances are high compared to your income, you should start paying down your debt as quickly as possible. If your current earnings don’t support that, save on gas, groceries, and utilities<; make money at home; or look for ways to tighten your budget.

5. Lower your credit card balances

Maxed-out credit cards aren’t doing you any favors. Get all your balances below 30 percent of each card’s limit to give your score some TLC.

Need some help paying down that debt? Here are some ways to pay off your credit cards.

6. Cut back on your applications

Applying for a lot of credit cards, personal loans, car loans, home loans, and business loans in a short amount of time can hurt your credit score and, even worse, make it look like you’re in financial trouble. Stick to applications that you need and apply for your loan again in a few months.

7. Build a credit history

If you haven’t borrowed before, you may need to build your credit. One way to establish credit is to become an authorized user on your spouse’s or a parent’s credit card. They’ll need to have good credit and a good payment history, and it’s even better if they’ve had the account for a long time.

You can also try a secured credit card, which lets you borrow against a refundable security deposit. Make your payments on time and your credit score will go up each month.

8. Consider applying with a cosigner

If you’re establishing a good credit history or dealing with some financial setbacks, a cosigner or co-borrower may be key to getting approved for your loan. Even better, if your cosigner has good credit, you might lock in a better rate, a bigger loan amount, or both.

9. Consider applying for less

Your chances of approval might improve if you apply for a smaller loan amount. While this may mean scaling back on your plans for that big purchase, you’ll be able to pay down a smaller loan much faster. (Some lenders, including Patelco, will automatically offer a lower amount that you may qualify for, on certain loan applications.)

10. Talk to the experts

Make sure you’ve explored all your options — and get personalized advice for your situation — with one of our Certified Financial Specialists. Schedule an appointment for a free financial checkup and learn how you can reach your goals sooner.

11. Take a Banzai course

As a Patelco member, you have complimentary access to Banzai, which gives you the financial knowledge you need to tackle real-world situations.

If you’re declined for a loan because of your credit history or because of outstanding debt, here are some courses that may be of particular interest:

• Get Out of Debt
• Using Credit
• How to Manage Your Debt