Being denied a loan is not inherently illegal; lenders can legally deny applications based on creditworthiness, income, or debt levels. However, it is illegal if the denial is based on discrimination regarding race, color, religion, national origin, sex, marital status, age, or public assistance income, according to the Equal Credit Opportunity Act (ECOA).
Under the Equal Credit Opportunity Act, lenders must disclose the reason for denying your loan application as long as you inquire about it within 60 days of the decision. This is known as an adverse action notice. Knowing this information is key to developing an effective strategy to get approved next time.
It is illegal to:
Refuse you credit if you qualify for it. Discourage you from applying for credit. Offer you credit on terms that are less favorable, like a higher interest rate, than terms offered to someone with similar qualifications. Close your account.
In order to get your personal loan application approved after rejection, you need to gradually build your credit score and clear your credit report.
Quick Answer. You generally need a credit score of 580 or higher to qualify for a personal loan. And you'll typically need a score in the 700s to qualify with favorable terms.
What to do if your mortgage loan is denied in underwriting
Yes, you can likely get a $50,000 loan with a 700 credit score, as this falls into the "good" credit range (670-739) that unlocks better rates, but approval also hinges on your income, debt-to-income (DTI) ratio (ideally below 36%), and overall credit history, with lenders looking for stability and repayment ability, so prequalifying with multiple lenders helps compare terms.
Lenders may have certain credit requirements, such as a minimum credit score, that you have to meet to qualify. Issues like a thin credit file or a low credit score may lead to a denied personal loan application.
Credit reports showing late payments, collections, or significant derogatory events—such as bankruptcies or foreclosures—can signal financial mismanagement and complicate underwriting.
Under some circumstances, a person would be able to sue a bank for its refusal to provide them with a loan. For example, if a bank has denied a person a loan for a discriminatory reason, i.e. on the basis of the person's membership in a protected class, that would be the basis for a lawsuit.
An unauthorised lender such as a loan shark doesn't have the legal right to make you pay back the loan at all. This is because the loan itself is illegal. If you've been approached by someone you think is a loan shark, contact the police.
How to get a loan when you keep getting denied
With a 700 credit score (considered "Good"), you're well-positioned to get approved for most major loans like mortgages, auto loans, and personal loans with more competitive interest rates and terms than someone with a lower score, plus you'll qualify for better rewards credit cards and may even see lower insurance premiums. You can access a wide range of financial products, but to get the best rates, scores above 740-760 are often needed.
A $20,000 loan over 5 years (60 months) costs roughly $2,600 to over $7,000 in interest, with monthly payments varying significantly by Annual Percentage Rate (APR), such as around $377 at 5% APR or $445 at 12% APR, meaning total repayment could range from approximately $22,600 to over $26,700.
The first step to improving your chances of getting a loan is to review your credit report. Make sure there are no mistakes, and if there are, contact the credit granting agency to get them fixed. Then make sure you are on the electoral roll. This helps confirm your identity, which is very important for lenders.
One of the most common reasons is that the borrower has a bad credit score. But bad credit isn't the only reason tied to the borrower's finances. A borrower may be denied if they can't provide the needed down payment and closing costs, have a high debt-to-income ratio or have no credit at all.
“Credit discrimination remains illegal in California and throughout the United States.