What to Do When Your Refinancing Application Is Denied

rejected student loan refinance

Refinancing can be a huge help when you have student loan debt. You can consolidate all of your debt into one payment, reduce your interest rate, get a lower monthly payment, and pay off your loans faster.

You can end up saving hundreds or even thousands over the length of your repayment term, freeing up more cash for other goals.

But if a lender rejects your application, it’s easy to feel disheartened or hopeless. However, just because one lender turned you down doesn’t mean you can’t refinance. There are other options that can help you recover from your rejected student loan refinance application and take control of your debt.

What to do if a lender denies your application

While refinancing can be a great tool for managing student loan debt, no one is guaranteed to get a new loan. Refinancing companies have eligibility requirements applicants must meet before they can get a loan. If you’re turned down by one, you might be able to work with another company or apply in the future, depending on your situation.

These steps can help you decide how to move forward — and help you find an alternative.

1. Find out why

When a lender denies you, they must notify you of the reason why your rejected student loan refinance application didn’t go through. Every lender has different criteria, so ensure you check the rejection letter carefully. Some of the most common reasons are:

  • Income is too low: Refinancing companies want to see that you can afford your payments. If your loan balance is too high relative to your income, that makes them nervous. Refinancing can be difficult for people who are unemployed or have a low-paying job.
  • Debt-to-income ratio is too high: If your overall debt-to-income ratio, which includes other debts like a mortgage or credit cards, is too high, lenders will be afraid to work with you. Too many obligations can indicate that you might be pressed for cash.
  • Insufficient employment history: Lenders want steady employment or a lucrative new job offer. Without qualifying employment, getting a loan will be difficult.
  • History of missed payments: It’s easy to forget to make a payment, but if you’ve missed some, several lenders will question your reliability.
  • Low credit score: Most companies require you to have a credit score of at least 660, if not higher. If your score is lower than that, you might be ineligible for refinancing.

2. Shop around at other lenders

Once you know the reason why a lender turned you down, check out other companies. While one lender might have very stringent requirements, others might be more relaxed.

For example, many lenders require you to have a credit score of at least 680, but there are exceptions. SoFi is one of the few companies that will work with people with lower credit scores — their minimum score is just 650.

Even if you have a lower-paying job, you might still be able to get a loan. While some require a minimum income of $75,000, lenders like LendKey and Citizens Bank only ask that you make at least $24,000 a year.

There are several companies that let you complete a pre-application with a soft credit inquiry, so you can find out if you’re a good candidate without damaging your credit score. You can find out if you’re eligible and get an estimate on your rates in as little as two minutes.

If you’ve been turned down, it can be worthwhile to check other lenders and see if they’ll work with you.

3. Get a cosigner

If you shopped around and still can’t find a lender to approve your application, you might consider adding a cosigner.

A cosigner — often a relative or close friend — should have a better credit history and higher credit score than you. They’ll add themselves to your loan as a guarantee. You can typically get a loan with a lower interest rate by adding a cosigner.

Cosigners share responsibility for your loan. If you were to fall behind on your payments, the cosigner would have to make them for you. Applications with a cosigner are less risky to a lender, so they are more likely to approve your application.

If you cannot get a loan on your own, ask a relative or friend to cosign the loan with you. It’s a big step and something you should not take lightly. But if you’re disciplined about your debt, adding a cosigner can help you refinance and save money.

If you can’t get a refinancing loan

If you can’t find a cosigner or are otherwise unable to get a refinancing loan, don’t give up. Take steps to improve your situation and make your application more competitive. By boosting your credit score or earning more money, you may be able to refinance in just a few months.

1. Increase your income

If you’ve been doing good work at your job and are underpaid, consider asking for a raise. Check out sites like PayScale to see what other professionals at your level make and ask for a salary closer to that amount.

If a pay increase isn’t in the cards, launching a side hustle can be a good option. You can earn extra income in your free time, which you can use to pay down debt or save for other goals. Some refinancing companies will include income from a second job in their review of your application, so a side gig can boost your chances of getting a loan.

2. Pay down debt

If your debt-to-income ratio is too high, start putting whatever extra money you have towards your debt. Even small extra payments can help you save over time and reduce your balance.

If money is tight, track your spending for one month. You may be surprised at how much you spend on non-essentials. When you know where all of your money is going, you can begin to make cuts. Even minor changes like cutting cable can help you find extra money to pay down debt.

3. Set up automatic payments

If missed payments are ruining your credit, there’s an easy solution. Set up automatic payments for all of your recurring bills, including rent, utilities, cable, car payments, or insurance. Doing so will ensure you don’t miss another payment, which can help improve your credit score.

4. Check your credit report

If a lender rejected you because of your credit score, make sure your credit report is accurate. You can check it for free at AnnualCreditReport.com. Review it regularly for errors, fraudulent accounts, or other issues. By identifying and contesting any mistakes, you can bolster your score quickly.

5. Consider a credit building loan

For those who have little to no credit history, getting a loan can be near impossible. It can be difficult to build your credit since many credit card companies and lenders won’t work with you.

One option that can help build your credit history is a credit builder loan. These types of loans allow you to take out a short-term loan. The money is set aside for you in a savings account or certificate of deposit account (CD) for a set time period (like 12 months).

You make payments for 12 months until you have paid back the loan amount. After that, the company releases the savings or CD account to you. Along the way, the company reports to the credit bureaus that you’ve made timely payments, which boosts your score. It’s a safe way to build your credit without a lot of risk.

Refinancing your loans

A rejected student loan refinance application can be discouraging when you’re struggling to manage your debt. But one denial doesn’t mean refinancing your loans and getting a lower interest rate is impossible. Make sure you know why the lender rejected you and shop around with other lenders. You have more options than you think.

If you’re ready to refinance your debt, check out the top lenders who can help you take control of your student loans.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderRates (APR)Eligible Degrees 
Check out the testimonials and our in-depth reviews!
2.75% - 7.24%Undergrad
& Graduate
Visit SoFi
2.57% - 6.39%Undergrad
& Graduate
Visit Earnest
2.57% - 7.12%Undergrad
& Graduate
Visit CommonBond
2.99% - 6.99%Undergrad
& Graduate
Visit Laurel Road
2.58% - 7.26%Undergrad
& Graduate
Visit Lendkey
2.89% - 8.33%Undergrad
& Graduate
Visit Citizens
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