What you need to know if your personal loan was declined | RateCity (2024)

• If you have been rejected for a personal loan, take the opportunity to reflect on your financial standing and think about ways to boost it.
• Try to find out why your personal loan application was turned down. Some common reasons include poor credit history, too much debt, unstable employment or insufficient income.
• It’s wise not to apply for a personal loan if you aren’t eligible for the loan or make multiple applications, as these all show up on your credit report.
• Aim to build up your credit score and borrowing power before making your next personal loan application.

It is not advised to immediately reapply after being turned down for a personal loan application. The first step to improve your financial standing for future applications is to understand why the lender refused you. Here are some of the most common reasons why a personal loan application could be declined.

• Poor or insufficient credit history – If you have a low credit rating, that indicates to the lender that you may struggle to pay off a potential personal loan. Likewise, if there is not enough information about your financial history, lenders may play it safe by declining your application. The big banks tend to be stricter with their lending criteria.
• Too much debt – If you’ve taken out multiple loans in the past few years and are still holding them, this could be a red flag for lenders. Lenders will look at the number of financial commitments or liabilities you have as part of their assessment.
• Not enough income – If the lender finds that you don’t make enough money to be able to meet loan repayments, they will most likely refuse to lend you funds. Often, the lender has minimum income requirements. As lenders are obliged by law to lend money responsibly, they may handle any perceived inability to pay off the loan with caution.
• Unstable employment or income – If you have switched jobs several times in a short period of time or cannot demonstrate a stable working history, this may be a warning sign for lenders. Some lenders may also reject personal loan applications if you have not yet passed your probation period at work.
• Credit reporting errors – Mistakes can happen that can severely impact your credit score. Examples of errors that may occur include one debt being duplicated on your credit report, an incorrect debt amount, or the report may overreport the number of loan enquiries you have made.

While there is no sure-fire way to get approved for your personal loan application, that doesn’t mean you should give it a go if you know you don’t meet the minimum requirements. Likewise, you probably shouldn’t be casting a wide net by making multiple applications. All new loan applications and rejections show up on your credit history, and these can potentially taint your track record to future lenders.

It’s also best to be honest on your personal loan applications. Not telling the whole truth will likely come back to bite you with a personal loan rejection, as lenders are generally experienced in spotting fabrications on loan applications.

• Learn from the rejection – It’s important to understand why your application was rejected. Ask the lender for feedback. If the reason for the rejection was due to your credit report, the lender can let you know which credit reporting body they used, and you can investigate this further.
• Talk to your lender – The next time you make an application, it’s a good idea to have a chat with the lender about your borrowing power and prospects before applying. They can give you an indication if you should improve your situation before applying again.
• Try another lender – Consider applying with a different lender, as they might have different assessment criteria. However it may not be ideal to apply again until you fully understand why you were rejected for your previous personal loan application.
• Build up your credit rating – Before you make your next personal loan application, it’s a good idea to improve your credit score. This might take some time but remember that borrowers with a higher score are considered by lenders to be less risky and are more likely to be approved for a loan. As lenders generally want to do business with quality borrowers, those with higher credit ratings may have stronger bargaining power and can save money in the long run.

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• Comb through your credit report – Credit reports can generally be obtained for free from most online providers, unless you need a copy quickly or if you request a credit report more than once a year. Understand the listings on your credit report and look for any errors. If you do spot mistakes, contact the relevant credit provider or credit reporting agency to fix it.
• Clear some debts – Consider paying off any debts where you can. The fewer debts you have or the less money you owe, the better you might look to lenders. If possible, make extra repayments to pay debts down sooner.
• Pay on time – Get into the habit of paying things like rent, mortgage repayments, bills and credit cards on time. Remember that late payments may also affect your credit score.
• Save money – Lenders want to see whether you have positive financial habits, including paying your bills on time and having a good amount of savings in the bank. If you can demonstrate this track record, your borrowing and bargaining power may be elevated.