How To Get Approved For Personal Loans & 6 Reasons Why You Might Be Getting Declined

Overview

• 6 reasons why you might be getting declined for personal loans
  • Poor credit score
  • High debt-to-income ratio
  • Employment status
  • Lender eligibility requirements
  • Open lines of credit
  • Gambling
• Tips on how to get approved for a personal loan

An application for a personal loan or other credit may be declined if you don’t have enough income or insufficient savings to meet loan repayments. The number of other loans and financial commitments you have and your employment security will also impact your application outcome.

These are the six most common reasons that you might be declined for personal loans and what you can do to secure a loan approval next time you apply.
 

When you apply for a personal loan, the lender must check your credit report and determine the risk of you not meeting your repayments. This is a requirement for responsible lending.

The three main credit reporting bodies in Australia, Equifax, Experian, and Illion, have their own scales to calculate your credit score. You can check your score for free every three months, which might be helpful if you’ve been declined for a personal loan. Getting a copy of your credit report is a great first step to understanding where you’re at and what to do first to improve your position.

Your credit report contains information like previous credit applications, missed payments on loans or utilities, and when you change your address. Addressing problems in your credit report can help you lower your credit score and get approved for your next personal loan.
 

When you go for a personal loan, the lender will consider how much existing debt you have, how the additional loan will impact your overall debt, and your ability to meet the monthly repayments. The amount of money you earn per month compared to the amount of debt you owe each month is known as the debt-to-income ratio (DTI).

For example, take someone who earns $70,000 a year and has a car loan of $15,000 and a personal loan of $5,000. When you divide their total income (70,000) by the amount of total debt (20,000), you would get a debt-to-income ratio of 3.5.

A high debt-to-income ratio indicates that you have large total debt repayments compared to your monthly income, which may signal a higher risk to lenders that you will miss a payment. On the other hand, a lower debt-to-income ratio means that you have a lower amount of existing debt, improving your chances of getting approved for a personal loan.

If you have been declined for a personal loan, consider the amount of debt you have compared to your monthly income. You might put a strategy in place to pay off the smallest debt quickly, or close lines of credit, including overdraft, consumer credit, and credit cards.

Another option is to consolidate debts into one loan so that you only have one repayment to worry about. This makes it easier to pay down the debt quickly. It’s also a great way to improve your credit score.
 

As part of the application process, the lender will ask you for your current working history and the employer’s details. Gathering this information allows the lender to create a risk assessment to determine if your loan request will be approved.

These details verify your current employment status and also provide income information. Lenders will look at details such as monthly income, duration of employment, and your employment status (casual, part-time, or full-time).

You may be declined for a loan if:

• You have only been employed for a short period (under 3 months or six months, depending on the lender’s policy)
• You don’t earn enough to service the loan repayments
• You may not meet the eligibility criteria if you are on a casual or low-hours part-time contract

When you apply for a personal loan, it is important to understand the eligibility requirements. These requirements may vary between lenders, however, all lenders must follow responsible lending practices.

Eligibility criteria may include owning an unencumbered vehicle, having a particular surplus income to service the loan, spending habits, or the number of additional loans or lines of credit you currently hold.

Non-bank lenders may have different criteria for personal loans than banks. If you have been declined by a bank, a non-bank lender may still be able to help you get approved for a personal loan.
 

An open line of credit is counted as a debt when the lender assesses your debt-to-income ratio. Lines of credit include credit cards, overdrafts, and “buy now, pay later” services that provide consumer credit.

While using these types of services can help with your weekly or monthly cash flow, it’s important to use them responsibly. This means making sure you can pay off the balance or meet the payments when they are due. Missed payments can negatively impact your credit score, just like a missed loan repayment can.

If you have been declined for a personal loan, you may want to close any of these services that you can, or reduce the balance owing.
 

When applying for a personal loan, lenders will ask for bank statements showing all transactions for the last 3 months. If you have excessive gambling debits on your statement, this may raise a red flag for the lender. Gambling can be addictive and it can easily consume funds that should be for bills or loan repayments.

If you do have gambling transactions on your card, make an effort to avoid these for three months before applying for a loan. It’s also best to set yourself a strict budget and stick to it in the future. That way you can place a bet on your favourite team without blowing up your bank account.

If you need help with gambling, reach out to the Gambling Help Line for support.
 

The best strategy to improve your chances of approval will depend on your personal circumstances. If you’ve been declined for a personal loan, try reaching out to the lender to find out the reason why. Once you know that, you can choose the strategy that will improve your chances of being approved next time.

1. Work towards a full-time position if you’re part-time or casual.
2. Reduce discretionary spending and pay off consumer credit balances, like “buy now pay later” and credit cards.
3. Limit the amount of gambling you do. Small infrequent bets are fine, but routine or big gambles will impact your chances of approval. Seek help and support if you need some guidance on changing your habits.
4. Consolidating your debt can help you pay it off faster and decrease your chances of missing a repayment. It also shows that you’re serious about tackling debt in a timely manner.
5. Pay your bills on time to show consistency and prove you can manage your finances. Utility bills can also impact your credit score, so if you are struggling to meet a bill deadline, reach out and ask about financial hardship options.
6. Create a budget and allocate additional funds to pay off your existing debts.

Now you have an understanding of why you could have been declined for a personal loan, you can make changes to increase your chances of approval.

Most banks have stricter lending requirements, so if you’ve been denied by them, the team at Red Tree Finance might be able to help. If you are looking to reapply for a personal loan, contact us for more information or apply for an online loan today!

How do I get a loan if I keep getting declined?

If your loan keeps getting declined, consider whether your credit score is low or if you have too many debts that need to be paid. Pay these bills off first, then you may increase your chances of getting approved.

Why is my personal loan not being approved?

Many different factors could affect your loan being approved like:

• The lender’s eligibility requirements
• Low credit score
• High debt-to-income ratio
• Credit card usage
• Excessive gambling
• Employment status and history

Does loan rejection affect credit score?

Applying for any type of finance, including a personal loan or credit card, can affect your credit score as the lender will need to do a hard credit check. This causes a small dip in your score, which usually returns to normal over time. However, being rejected for a personal loan will not affect your credit score.

The information provided in this blog is of a general nature and is provided without considering your specific objectives, financial situation, or needs. It is intended for informational purposes only and should not be relied upon as financial, investment, or other professional advice.

Before making any financial decisions or taking action based on the information presented, you are strongly encouraged to assess its appropriateness in light of your individual circumstances. Red Tree Finance does not intend to provide personalised financial advice, and you should seek independent financial, legal, tax, and other relevant advice tailored to your unique situation.