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Got a loan application declined? What should you do next?

Applying for a Loan

If you’ve recently been declined for a loan, we understand you’ll be disappointed and would like to know the reason as to why.

Below we explain why loans are generally declined and then we share with you what to do next time to improve your chances.

Understand why your personal loan was declined

There are a number of reasons why a loan can be declined. Generally speaking, all lenders have policies and lending rules that they must abide by to keep their Australian Credit License.

Here are three of the most common reasons why loans are declined.

1. Affordability

Lenders have their own way of calculating whether you can afford the repayments on a loan. Regardless of whether you believe you can make the payments, the lender must rely on their own affordability calculator. If they calculate that you don’t have enough surplus cash to comfortably afford the repayments, or determine the loan could cause you financial stress, your loan will be declined.


Have a look at your bank statements – do you have enough surplus money each month that would easily cover the new loan repayments or is your bank account balance close to zero until your pay goes in?

2. Credit History

When you complete a loan application, it’s very likely you will need to consent to the lender performing a credit check on you. For an online application this can often be a “tick box” that you need to tick. This allows the lender to access your credit file which is held and maintained by a credit-reporting agency.

Your credit file holds a lot of information about you, that lenders can use to assess whether you are a high or low risk to lend to. It includes information such as any loans/credit cards/store cards you have applied for, your current and previous employment and addresses, and if you have defaulted or missed paying any loans or bills (such as telephone, rates, water, electricity etc.)

Most prime lenders (like the big Banks) have very strict lending policies when it comes to their customers’ credit history. For example, if you have missed payments or defaults listed against you, Banks are likely to decline you.

You should obtain a copy of your credit report to understand what’s listed and then research what lenders have a more flexible policy when it comes to credit history. Generally lenders who can help customers with bad credit will charge higher interest rates etc.

3. Security

The size and purpose of the loan you want will determine if you need to provide security for the loan. Security gives the lender extra confidence you will repay the loan, and if you don’t they can then legally repossess the security and sell it to repay the outstanding loan.

For example, if you are buying a car, often the lender will require the car as security and they will list an interest against your vehicle on the PPSR (Personal Property Securities Register).

Another example is if you’d like to borrow a larger loan (say over $5,000) and you already own a car. By providing your car as security for the loan, this can help to strengthen your application, particularly if your credit rating is not very good.

If you only need a small loan, say less than $2,000, often you are not required to provide security and this is called an unsecured loan. Credit Cards and Store Cards are another form of an unsecured loan but be mindful they can quickly get out of control if you are not disciplined with your money.

For more information you’re welcome to read our blog “Why choose a personal loan instead of a credit card.

What to do if your loan application was declined

1. Get a clear understanding from the lender as to the exact reason for the decline.

If it is due to affordability, ask the lender for feedback.

Every lender is different so every affordability calculator is different. By understanding your financial position from their perspective will help you for future loans. Talk to other lenders to see if they’ll do an affordability calculation for you BEFORE you submit an application.

It’s essential you don’t start re-applying without understanding your affordability.

If you do, lots of new loan enquiries will show up on your Credit Report, and this is a very bad sign to prospective lenders.

Many lenders have guidelines to decline a customer if they have a lot of recent loan enquiries on their file so whatever you do, make sure you don’t complete applications everywhere – it will work against you.

If you were declined due to your credit history, then you should ask for a copy of your credit report and understand what is listed on it.

If the lender doesn’t give you a copy, then you should be able to obtain a free copy from the Credit Bureau they used. (Be sure to ask the lender as there are four different bureaus in Australia.)

When you understand what has caused your decline, for example a telephone account that you never paid, then you may wish to contact the telco to find out how much it would cost for you to clear the debt and have it marked as paid. If you need a loan to help, then you should talk to a lender who deals with bad credit loans like ourselves.

2. Ask if you are eligible before submitting a formal application.

Be open and honest about your previous decline reason. By doing so a lender can give you a good indication if your application is worth submitting now, or if you are better to wait for a certain length of time to improve your circumstances.

Check their website to see if they have clear information about loan eligibility, and if you’re still unsure, phone them or contact them with what you’d like to know.

3. Be prepared for your next application.

The best thing you can do after getting a decline, is to learn from it and be better prepared for when you next apply for a loan.

Make sure you can provide information like a current payslip and I.D, and be prepared to provide your bank statements. At Fair Go Finance we provide a free and secure online bank statement service which only takes a few minutes to do. It saves you a lot of time from having to manually print or email them and it also means your loan can be processed even faster.

Lastly, please remember to get a current copy of your credit report to ensure nothing new has been listed against you. If something has, get straight on it and get it paid or consider having it included in the purpose of your loan. At Fair Go Finance we help a lot of customers who need to repay a default listed on their credit report, the key is, to be honest from the start.

How much does a declined loan affect credit score?

It will not directly affect your credit score, but the resulting enquires on your credit report will have a negative impact if you continue to make applications after you’ve been declined by a lender. This may affect your chances of getting a loan application approved in the future.

We hope this information has been helpful, and we wish you the best of luck for your next loan.