8 reasons your personal loan might get declined (and how to avoid them)  

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Team MONEYME|18 July 2023| 4-minute read

There are two reasons why you don’t want your personal loan application to get rejected.  

First, you likely need the money to do your thing – be it buying a car, planning a wedding, or starting a business.  

Second, a rejected personal loan application can bring down your credit score, which in turn can make it harder to get a loan in the future as well. 

Here are 8 reasons why you might get the boot – and what to do before applying to avoid rejection. 

1. Your credit score is down ⬇️ 

Problem: Your credit score is low. Your credit score is a number based on your credit history. It indicates how reliable you are with repaying debts. The lower your score, the less likely your loan will get approval. 

Solution: Take steps to help improve your score, like repaying debts on time. More tips are over here

2. Your credit utilisation ratio is tight 😫 

Problem: Your credit utilisation ratio is the difference between your credit card limit/s and how much you owe. The narrower the gap, the worse your borrowing status. 

Solution: Reduce the ratio by repaying your debt quickly.  

3. Your income is too low or your expenses are too high for the loan 💸 

Problem: Your bank statements show that after your usual spending you might not have enough income left to comfortably repay the loan. 

Solution: Before adding a loan to your load, make sure you’re in a position to make repayments, while meeting other financial obligations.  

Review your finances thoroughly. If things look tight, consider if there’s a way to increase your income (by taking on more work if you can or asking for a raise), or where you could reduce your spending. Check out our savings tips here

4. Your employment status 👷🏽‍♂️ 

Problem: You’re unemployed, have worked casually for fewer than twelve months, or have been self-employed for less than 2 years.  

Not surprisingly, most banks and lenders require people are employed to offer them a loan. Casual workers can get dismissed without warning, which might make you too risky for a lender. And self-employed workers can be susceptible to fluctuations in income that could make it harder to make repayments. 

Solution: Swap to permanent employment if that’s an option or wait till you’ve worked casually for longer than twelve months.  

If you’re self-employed, make sure you have a good credit history and can show that your business has been financially stable for at least two years. 

5. You’re juggling many debts 🫣 

Problem: You’re repaying multiple debts, including your buy now, pay later accounts. A lender might not be keen on adding yet another.  

Solution: Pay down your other debts first (including buy now, pay later) or consider consolidating them into one monthly repayment. 

6. Gambling 🎰 

Problem: You take your chances on pokies, horses, or footy teams. Even if you just dabble or don’t lose massive amounts, this creates the impression you’re unpredictable. 

Solution: Quit gambling as soon as possible and wait at least 3-6 months before applying for a loan. If you’re struggling, get help 24/7 via Gambling Help Online

7. Too many rejected credit applications 🙅🏽‍♂️ 

Problem: Recently, you may have applied for credit multiple times–unsuccessfully. This suggests you have a cash flow problem, and that you’re not an appealing prospect to other lenders.  

Solution: Maybe it isn’t time, quite yet, to rush into getting a personal loan. Put a halt on all applications, focus on building financial stability, and apply when you feel sure you’ll be able to make repayments. 

8. Times are tough 💪🏼 

Problem: Economic developments, like high interest rates and rising inflation, create a risky environment for lenders. This can make them tougher on applications.  

Solution: You can’t control economic developments. But you can ask your lender about eligibility requirements, then make sure you’ll likely meet them before applying.  

Ready to go 🚦 

After working your way through these potential problems, you should feel more confident about submitting your application. That means getting one step closer to kicking your goals. 

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