Why Was My Loan Application Declined

Being declined for a loan can be disappointing especially if you are in a bind or if you have exhausted all other options.  Receiving a personal loan rejection does not have to always mean it’s the end of the road.  If the loan company do not tell you why your application was unsuccessful then you might need to take a step back and look at your personal situation.  You might be able to see some areas that need improvement. 

There are multiple reasons why a loan application might be declined.  These include poor, or insufficient credit history, too much debt or having difficulty paying outstanding debt, having unstable employment or income and even gambling.

Do You Have a Low Credit Rating Score?

Having a low credit rating can indicate to a lender that you may struggle to pay off a potential personal loan.  Enquiries and defaults from other lenders and telecommunications companies can lessen your credit rating and affect how a lender sees your ability to pay back a loan. 

Likewise, if there is not enough information available about your financial history, lenders may decline your application just to play it safe. 

If you are young, having a new credit file may not be as detrimental as being in your 40s or 50s and having no history.  The big banks generally tend to be stricter when it comes to what they are looking for in a credit rating.

Do You Have any Outstanding Debt?

Having a large amount of outstanding debt can also affect your ability to get a loan.  Lenders often look at the number of other loans you have already and at your debt-to-income (DTI) ratio. Lenders will also look what type of other debt you have and what you are asking for from them. 

If you already have three other smaller personal loans, they will be unable to offer you a fourth.

Are you Constrained by Other Loans you’re Currently Paying Back?

Similarly, if you have another higher secured personal loan but only one vehicle, they may not be able to offer you another secured loan with your existing collateral. 

Additionally, if you have other loans where the repayment requirements are not being met, a lender may be unable to offer you finance, knowing your current loans are going unpaid.

Is Your Employment Status Hampering your Chances of Getting a Loan?

Another thing that may affect your ability to acquire a personal loan is your employment status or income.  Having a low or casual income might mean you may not be able to afford a personal loan. 

If you switch jobs regularly or are unable to demonstrate a stable employment history, it might indicate that you may be unable to meet your loan repayments at times through the duration of your loan. 

Some lenders may even decline your application if you have not yet passed your probation period.

Are there Other Reasons Loan Lenders Might see you as High Risk?

Finally, there are reasons a lender might decline an application that do not fit into one of the above categories.

Lying and excessive gambling could also cause an application to be unsuccessful. If you withdraw all your money out of your account in cash and leave nothing in there for a loan repayment, a lender will take this into consideration. 

If You’ve Been Denied a Loan Improve your Chances for Next Time

Many lenders understand that being declined can be disappointing and frustrating, we understand that you may be relying on a loan for something important.  If you have been rejected for a personal loan, take the opportunity to reflect on your financial standing and think about ways to improve it.  We have another article on how to improve your financial standing if you would like some hints.