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Why do I keep getting declined for personal loans?

By Rebecca Pike, money expert at Finder 

If your application keeps getting rejected, there are a number of remedies.   

Applying for a personal loan can be daunting more so if you’ve been rejected before. If you’re applying again, it’s best to take a step back and work out why your application was rejected. There are also steps you can take to improve your chances of approval.  

Why did they decline my personal loan application? 

If your personal loan application was rejected or keeps getting rejected, you first need to figure out why. Lenders are required to disclose why your application was rejected. This can help you understand what went wrong and how you can rectify it. Your application could have been rejected for these reasons:  

Your credit score 

Traditional personal loans have strict credit requirements. Your credit score could be the problem.   

You may have a low score for various reasons, including a bad repayment history. If it’s patchy, you will be considered an unreliable borrower. Lenders are less likely to lend in such instances, though some lenders specialise in these types of loans.   

Applying for many loans within a short period can tank your score too. Every loan application comes with a hard credit check, which impacts your score. Several checks can significantly lower your score and act as a red flag to lenders. 

Tip: You can improve your score if you pay your bills on time. Pay off any debts you can and lower your credit card limit. Maintain a good banking history by saving, honouring your direct debits and making sure your account doesn’t go into arrears. 

Insufficient income or it’s more than you can afford  

All lenders have minimum income requirements. If your income doesn’t meet these requirements, they will reject your application.  

If you apply for more than you can reasonably afford, your application will be rejected. Lenders will consider how your monthly repayments will affect your budget and if you’ll struggle to meet your daily requirements with a loan.  

Tip: Applying for a lower amount can increase your chances. Also consider how the repayments will fit in with your budget. If it’s a stretch, you’re applying for too much. 

High DTI or too many debts  

Your debt-to-income (DTI) ratio will also be assessed. This is your monthly income compared to your monthly expenses and debt repayments. If your DTI is over the lender’s threshold, your application will be rejected.  

Alternatively, you could have a low DTI but too much debt, including credit cards and student loans. With too many debts, the lender may feel you’ll struggle to meet yet another repayment.  

Tip: Pay off your credit card debt and close your account. You could also secure the loan with an asset. This will reduce the lender’s risk and increase its willingness to lend. Secured loans come with the risk of repossession if you default. They also come with lower interest rates.  

You didn’t meet their requirements 

You could have enough money, but you may not meet the lender’s other requirements. This includes age, citizenship and type of employment. You need to be over 18 and a citizen or permanent resident of Australia.  

The type of employment and your employment history matters. If your employment is unstable or if your income is irregular or variable, your loan application can be rejected. This may also be the case if you’re still on probation or you’ve changed jobs one too many times.  

Tip: Compare lenders and loans. Sometimes you may not meet the strict criteria. That doesn’t mean you cannot get a loan. There is a range of lenders, including alternative and short-term lenders with different requirements. There are also personalised loans that cater to borrowers with less than perfect scores. For instance, Fair Go Finance offers personalised rates on its small loans, personal loans and lines of credit. Remember to factor in all the costs before applying.  

Loan purpose doesn’t meet lender’s criteria  

There are personal loans that can be used only for specific purposes. Green personal loans, for instance, allow you to use funds only for green home updates. It’s best to ensure your loan purpose matches what the lender is willing to lend for.   

Mistakes on your application or credit report  

You may have incorrectly filled in your details or left something out. Double-check your application and make sure you’ve filled it out correctly. Inaccuracies are enough to lead to a rejection. The same goes for your credit report. You can get a copy for free and it won’t affect your credit score. 

Tip: Double-check your details. Loan applications have become easier than ever, but there’s still room for error. Make sure you check everything from your contact details to information about your income. It’s also worth checking your credit report for inaccuracies, including your personal details and debts. If there are any errors, you should contact the credit rating agency.  

How can I apply for a personal loan? 

To apply for a personal loan, you should:  

🔍 Compare lenders to find a loan you’re eligible for. Check the lender’s eligibility criteria, including income and credit score requirements. Don’t forget to check the fees and interest rates.  

🖨️ Organise and prepare the required documentation. This can make the application process easier. 

Apply. Most lenders have their applications online. 

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Are you eligible to apply?

  • I am 18 years or older
  • I have not entered into bankruptcy or part 9 agreement within the last 6 months
  • I am willing to provide my Bank Statements online
  • My income is not solely from Centrelink
Please note: Bank statements can only be submitted via our secure online service.