What To Do When Your Personal Loan Application Is Rejected

June 15, 2021

You applied for a personal loan and received a big fat no from the lender. What should you do now? If you really need those funds, it may be tempting to jump right into another application. With the first application, you were just unlucky, right?

While yes, you may have been unlucky, perhaps filling out some details incorrectly on the application, it’s still not a good idea to reapply straight away. Unless you know exactly why your application was rejected, there is a chance that it will happen again. And from there, you will have to overcome two rejections next time you apply, instead of just one.

Instead of reapplying straight away, take time to figure out the reason behind the rejection. You can then work on making the necessary changes, ensuring everything looks good before you apply again.

In this post, we’ll look at the most common reasons behind personal loan rejection, to then discuss what changes you can make, as well as some tips for getting approved when you’re ready to reapply.

Reasons Why It May Have Been Rejected

Let’s look first at why your application may have been rejected. It’s worth bearing in mind that you can ask the lender for the reasoning behind the rejection if you are unsure.

You didn’t meet eligibility requirements

All lenders place certain eligibility requirements on their loans that applicants must meet in order to be approved. As a general rule, this usually means you must be 18 or over, and an Australian citizen or permanent resident. Lenders may also have minimum income criteria, requiring applicants to bring in a certain amount of income per year. Credit history may also be a factor, where only applicants with good credit history will be approved.

You made too many applications

Each credit application you make is recorded on your credit report. If you make a number of credit applications within a short period of time, lenders assessing your creditworthiness may conclude you are desperate for credit, and deem you to be too ‘risky’ to lend to.

Your income is too low

When you apply, the lender will assess your income to determine the likelihood of you being able to make your repayments. If your income is too low to service the loan – and that by being approved you will experience financial stress – the lender may choose to reject your application. The same may also apply if you have an unsteady employment history, jumping from job to job.

Your outgoings are too high

Even if your income is substantial and meets the loan’s eligibility requirements, the lender will need to take into account your outgoings to determine whether you can actually afford the loan. If you have no savings, if you have a number of debts you are currently paying off, if you have too many credit cards with high credit limits, the lender may decide the risk is too high to lend to you.

Your credit report lists late payments

Every time you make a repayment on a loan or credit card more than 14 days past its due date, it is recorded on your credit report. To a potential lender, those late payments signal either an inability to repay, or a level of irresponsibility that is equally as unappealing. As a result, if you have a number of late payments recorded on your credit report, the lender may choose to reject your application.

Your credit report features defaults

A default is a missed payment of more than $150, which remains unpaid 60 days or more past its due date. Defaults are recorded on your credit report, and will remain there even after making the payment. If you have defaults – or perhaps court judgments or bankruptcies – these signal to the lender that you are high risk, which again, may lead to rejection.

Your credit history is non-existent

With no credit history, you are an unknown quantity. The lender has no way to judge how you may deal with the loan if you are approved, which again, makes you a risky applicant. This can be something of a catch 22 situation, where you can’t get approved for credit without a credit history, but you can’t get a credit history without being approved for credit.

Can you improve your credit with BNPL?

Unfortunately, no. When you use buy now pay later platforms, such as Afterpay, you may feel like you are accessing credit, but you’re not. BNPL is not classed in the same way as more traditional forms of credit, like personal loans and credit cards, and as such, your experiences with BNPL won’t go towards building your credit score.

If you want to build your credit, it can be a good idea to start small. Apply for a mobile phone contract or a basic credit card. Opt for a secured car loan, or get a loan with a guarantor. Then, by being a responsible borrower, making your repayments on time and avoiding getting in over your head, you should find your credit score starts to increase over time.

Your credit report features errors

It’s actually quite common for credit reports to contain errors. If your credit report features incorrect information, it could affect your chances of being approved, especially if those errors involve incorrect negative details, such as late payments or defaults. However, even something as innocuous as your name spelt incorrectly or your employment info being out of date could go against you if it doesn’t match the details you provide during the loan application.

Changes You Can Make

Once you’ve worked out why your personal loan application was rejected, you can start making changes to improve your chances of approval later on.

Check your credit report

It’s always important to check your credit report before you apply for a loan. If you missed that step last time, it should be the first thing you do now. There are three main credit reporting agencies in Australia – Equifax, Experian and illion – and each allow you to check your credit report for free at least once a year.

Be sure to check your credit report with all three agencies, as each report could be different. And, as you don’t know which report future lenders will access, you need to make sure the information held within each one is correct. Comb through the details in each report carefully, and apply to have any errors corrected by the agency responsible.

Even if there are no errors to be found, accessing your credit reports should give you a better idea of where you stand. If your credit is middling or worse, you know that you’ll need to spend time building up your credit before you reapply. If your credit is good, you know you have something else that’s holding you back from approval.

Look for other sources of income

When you reapply, you want the lender to be in no doubt of your ability to repay the loan. That means bringing in a sufficient income from steady employment. If you have a tendency to bounce around jobs, try to find something you like and stick at it for at least a year. You may also look for other sources of income to boost the amount you have coming in.

Pay down debts

With a number of debts in your name, you obviously have a number of repayments to keep on top of each month. Not only can having multiple debts be stressful, it also lowers the amount you have available to make repayments on a new loan. Before you reapply, take time to pay down any debts you currently owe, including other personal loans, car loans and credit cards.

TIP: If you are planning on applying for a personal loan to consolidate your other debts, it may be worth mentioning this to the lender.

Reduce your risk

When you apply for a personal loan, you want the lender to think of you as low risk. While this aspect of risk will be determined by your history of making repayments on time, and by factors such as your income and job stability, it will also be affected by your potential to get into debt and get in over your head.

What do we mean by that? As part of the application process, the lender will assess your credit cards, looking not only at the current balance on each card, but its credit limit. Even if your balance is at $0 and you never spend even close to the card’s limit, the lender needs to evaluate your ability to make repayments on the new loan, based on your credit cards being at their limit.

For that reason, it can be a good idea to close credit card accounts you don’t need, or lower your credit limits down to a minimal amount before you reapply for a loan.

Example: Jade has three credit cards; one with a $10,000 credit limit, one with a $8,000 credit limit, and one with a $5,000 credit limit. She rarely spends more than $2,000 each month on each card, and always pays down the balance at the end of the month.

Despite that, her potential for spending sits at $23,000. Any future lender would need to consider her ability to make repayments on that entire potential debt, to determine whether she could then cover the repayments on the new loan as well.

To lower her risk, Jade decides to reduce the credit limit on each of her cards to $2,000, bringing her potential for debt down to $6,000. This lowers the amount she would need to pay out if she happened to max out her cards, allowing potential lenders to see she could easily make those repayments alongside her new loan repayments, if she were approved.

Build your savings

With no savings, you have nothing to fall back on. So, if you hit a lean period, you may struggle to make your repayments. This, again, can make you seem risky in the eyes of a lender. By taking time to build up your savings, you can prove to lenders that you are financially responsible. The funds you build up can also be used to cover your repayments when needed.

Always make repayments on time

Even if you already have late payments recorded on your credit file, you can turn things around by making your repayments on time moving forward. If you have trouble keeping on top of your repayments, start by making a spreadsheet of each of your debts, detailing when each repayment is due, how much it is, and how you usually make the payment.

You can then set reminders on your phone to prompt you to make each payment manually, or alternatively, create a direct debit so that payments are made automatically. With this option, it’s important to make sure you have enough in your account to cover each payment before it comes out, or you’ll get hit with late fees.

Wait it out

Negative information doesn’t stay on your credit report forever. If you think your credit would be too low to get approved right now, you may be best waiting it out until negative items fall off your credit report. As this happens, your credit should improve. Continuing to make your repayments on time and holding back on making new applications should also positively impact your credit.

TIP: When you have black marks on your credit report, a lender will look upon them more favourably if they happened some time ago. If your black marks are more recent, you may need to improve your behaviour over time before you apply again.

Applying Again

Ready to apply? If you’ve got to the bottom of why your application was rejected last time – and have since made amends – you may be ready to reapply. Here are the five steps you can take towards approval.

Step 1. Create a budget

Head off any uncertainty around your ability to repay the loan by working out exactly where you stand financially. Most people underestimate their outgoings, while overestimating the amount they have coming in, which can cause problems when gauging what new debt they can afford to take on.

To prevent this from happening to you, create a detailed budget over a period of at least a month. The budget should detail your exact income, alongside regular outgoings, such as bills and debt repayments. Be sure to factor in all other outgoings, even if you think of them as ‘one-offs’.

Step 2. Apply for a loan that’s affordable

With your budget in hand, you will know exactly how much you can afford to pay out each month in repayments on your new loan. Using that info, use a personal loan calculator to play around with loan amounts, loan terms and repayment schedules to find the loan that will fit your budget, with plenty of wiggle room built in.

Step 3. Check the small print

After comparing your options and narrowing your choice of loans down to one or two, it’s time to dig a little deeper into the small print for each loan. Pay particular attention to each loan’s eligibility requirements to make sure you are eligible to apply. If you’re unsure, ask the lender to clarify any details.

TIP: When you compare personal loans and apply via Creditworld, this comparison process becomes so much easier. We’ll ask you to provide details of your situation, as well as what you want from a loan, to then offer you a range of suitable options from our panel of lenders. No need to worry about whether you’re eligible or whether you can afford the loan – we do that all that for you.

Step 4. Pay attention to details when you apply

Online applications make applying for a personal loan super easy. But, that doesn’t mean you should slack off during the application process and be careless with your answers. An incorrect answer could see your application being rejected – again – so be sure to double-check your answers before you hit apply.

Again, if you’re unsure about anything, you can save your application and ask the lender for more information. Better to take more time completing the application, than guessing your way through it and risking rejection.

Step 5. Answer truthfully

It can be tempting to stretch the truth during an application to increase your chances of being approved – especially when answering questions regarding your financial situation. This is never a good idea. Lenders check the truth behind the answers you provide, and will usually ask for evidence to back them up.

If there are any discrepancies, the lender may reject your application, or ask you to provide more information.

Tips For Getting Approved

  • Learn from the rejection. Understand why your application was rejected and make changes before you reapply. Ask the lender for more details, including which credit reporting agency it used to assess your creditworthiness.
  • Talk to your lender before you apply. If you know why you were rejected last time, you can discuss this with your lender when you’re ready to reapply. Go over what changes you’ve made, and find out if you’ve done enough before you apply again. If you are applying for a loan to consolidate your other debts, again, it’s worth mentioning this to the lender.
  • Explore and expand your options. There is no rule that says you need to stick with the same lender next time you apply. Be sure to compare all your options thoroughly before you settle on one, making sure both the lender and the loan offer the right fit for you.
  • Take the guesswork out of the process. By choosing Creditworld for your next loan, our expert team can take some of the mystery out of applying for a personal loan. We know exactly what lenders are looking for, so we can easily match you with the lender that fits.

Are Bad Credit Loans A Good Idea?

If you have bad credit and want to apply for a personal loan, your options can be limited. If you’ve checked out bad credit loans, you may be tempted to go down that route when you next apply. But, is this is a good idea? Let’s look at the pros and cons of bad credit loans.

  • They can be easier to get approved for. Even when you can’t get approved for a loan from a traditional lender, you may be able to get approved for a bad credit loan.
  • They can take the stress out of the application process. When you apply for a bad credit loan, the expectations of you as a borrower are lower. This can help to reduce the stress you experience, worrying whether or not you will be approved.
  • They can give you access to the money you need. If you’re applying for a personal loan, you obviously need the money for something. With a bad credit loan, you get the money you need, when you need it.
  • They can help you improve your credit. As long as you make your repayments on time, you can use your bad credit loan to improve your credit over time. This can make it easier to get approved for a more traditional loan next time.
  • They can be more expensive. Bad credit loans are considered higher risk by lenders. As a result, they tend to come with higher interest and fees. This will make the loan more expensive, giving you higher repayments and resulting in a higher overall cost.
  • They may encourage you to get in over your head. If you choose a less than reputable lender that is willing to look past certain shortcomings, you may find yourself with a loan you are unable to pay back. This could lead to missed repayments, further affecting your credit for the worse.

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