Why was my Personal Loan application declined?

If you've been knocked back for a loan and want to find out why, you probably won't get a satisfactory answer. Lenders try to avoid telling you the specific reason because they want to protect their lending criteria from being public knowledge and from their competitors.

You're only going to get the run around if you pressure your lender to tell you the specifics. However, understanding the general reasons can help you understand why you may have been declined and what you can do about it.

Lenders want people who have:

  • An income that allows you enough money to pay back the loan.
  • A good credit history.
  • Stable employment history.
  • Stable living arrangements.

If your personal loan application has been rejected, it is may have failed in one of these areas.

Lenders make assumptions about your financial habits. This is based upon on previous applicants behaviour and habits. This allows them to make conclusions about your application. The lender then has an idea about whether you are likely to be a good client and repay the loan.

Main Lending Criteria

Income

According to their specific formula, your lender will decide if you will be able to repay the loan. The lender will not allow the repayments to rise above a certain level of your income. Lenders also take into consideration any other debts you have, such as other personal loans and credit cards. If the repayments are over a certain percentage of your take home pay, you will be refused a loan automatically. Most lenders will factor in an increase of interest rates.

Credit History

Everyone has a Credit File. Lenders will always check your credit history before approving your loan.

Your credit file contains the details of your credit history. This includes details of:

  • Previous loan applications for the last 5 years.
  • Current loans.
  • Overdue accounts - also known as defaults.
  • Current and previous employers.

Some lenders will refuse your application no matter how small the overdue amount is. Personal loan applications leave a notation in your credit file and if you make multiple applications, this can be seen as an indicator of financial stress. You should keep loan applications to a minimum.

Employment

Lenders look for constancy in employment. Someone who changes jobs a lot or is still in their probation period can give the impression of lacking reliability.

Residential Situation

Lenders will often consider your residential situation. Moving around frequently is another potential indicator of unreliability.

What to do if your loan application has been declined

Look at your credit file

Check your credit file prior to making a personal loan application to ensure entries are accurate and overdue account should be rectified immediately.

Checking your credit file is free with Veda Advantage (mycreditfile.com.au).

Be patient

If you have changed employer and are still within the probation period, try waiting until your probation period ends. Some lenders will not consider your loan application until you are a permanent fulltime employee.

Consider a secured personal loan

You lender will use an asset of your as security with as secured loan. Secured loans will often offer lower interest rates.

In conclusion

There are some positives if you are declined a personal loan. Before applying again for another loan, you will have time to:

  • Increase your savings.
  • Create a savings track record to show the lender.
  • You will have a larger deposit.
  • You won't need to borrow as much.

Don't despair if you are declined a personal loan. You will have opportunity to apply again soon.

In the mean time you can:

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