It’s often the case to have your loan declined at a time when you need money the most. It can be frustrating to have your loan declined, especially with little or no explanation. In this article, we provide some insight into why your loan application may have been declined and outline practical steps you can take to improve your financial position for a better outcome next time.
Reasons Why You Could’ve Had a Loan Declined
There are many reasons why you could have a loan declined. Each bank follows its own lending criteria to determine eligibility for loans. While it’s impossible to know exactly what each lender is looking for, the reason for a declined loan usually boils down to one of three main reasons:
1. Loan Declined Due to Your Credit Rating
Your creditors will mark your activity on your credit report each time you interact with them. This credit report gives you a credit score which indicates to lenders whether you are a high or low risk client. For example, if you are more than 60 days overdue on a credit payment of $150 or more, your lender may list a default on your credit file. Defaults will give you a bad credit rating and lenders will be reluctant to lend you more money. There are many things which may impact your credit rating including:
- mortgage arrears
- late payments
- too many enquiries
- tax debt
- overdue bills
You can view your credit report and score for free at any time using ClearScore, which uses Experian & Illion data and won’t affect your credit file.
2. Loan Declined Due to Affordability
Lenders need to make sure you will be able to afford the loan repayments, not only now but into the future. Your creditors will calculate your debts to see if you have enough left to afford your loan. They can also decline your loan due to irregular income. If you are struggling with unsecured debts like credit cards or personal loans, Debt Management Solutions may help.
Options include a Part IX (9) Debt Agreement, which is a formal, legally binding arrangement under the Bankruptcy Act 1966. This allows you to settle your unsecured debts with affordable repayments over a set period, often reducing the total amount you owe and pausing most interest and fees. Another option is an Informal Agreement, which is a negotiated plan with your creditors to lower repayments and pause interest without entering a formal insolvency process. Both of these solutions can combine your debts into a single, manageable payment and help provide relief if you cannot meet your current obligations.
3. Loan Declined Due to Security
Lenders will often decline a loan if a person has no security or deposit to offer upon the application. In order to borrow large amounts of money, say for a home loan, a lender will often require some kind of security first. You may need to have a certain percentage saved of the amount you wish to borrow. They may also ask you for a guarantor.
When Can I Apply Again After My Loan Declined?
If you have had a loan declined, it can be tempting to rush out and apply again through a different bank. However, if one major lender declines your loan application, the chances of a different major lender approving your loan are slim. But don’t worry, there are options available to you.
Instead of reapplying straight away, focus on addressing any unpaid bills and catching up on overdue repayments. Make sure you pay your bills in full and on time, and if possible, put some money aside to demonstrate positive saving habits. Once your financial situation and credit file have improved, you can consider applying again with a stronger application.
Alternatives if Your Home Loan Declined is for Debt Consolidation
Buying property is the biggest financial decision most people will make, and your home will likely be your greatest asset. When unsecured debts like credit cards, personal loans or payday loans start piling up, many people consider refinancing their home loan to consolidate debt. By the time they look to refinance, their credit file may already be affected by missed payments or defaults, which can result in their application being declined.
If this happens, a Debt Management Solution can be a practical alternative. For example, a Part IX (9) Debt Agreement is a legally binding way to combine and reduce your unsecured debts into a single affordable payment over a fixed term, with interest paused. If you do not qualify or want to avoid a formal insolvency option, you can enter into an Informal Agreement that pauses interest and reduces payments on your debts without going through a court or legal process. Both options are designed to help you regain control, stop collection activity, and relieve the stress of multiple debts, without needing to qualify for a new loan or risk your home.
%20%20(1).gif)
How to Avoid Having Your Loan Declined
So you’ve had a loan declined. There are things you can do to improve your financial position and help get your loan approved in the future.
Pay Your Overdue Debts
Pay off your overdue bills and outstanding debts. If you have received a default for these payments, it will remain on your credit file for 5 years. You may have success if you ring your creditor and ask them to remove the default if you pay your debt in full. Regardless of if they agree, if you pay off the debt, it won’t cause any more damage to your credit file. As far as your creditors are concerned, a repaid debt is better than an outstanding one.
Be Selective With Your Applications
Don’t make several applications for the same loan within a short period of time. All the applications you make will be noted on your credit file, regardless if you follow through with the application or not. Six or seven enquiries on your credit file contributes negatively to your credit score. If you are rejected; wait at least 6 months before applying again.
Go with the Right Lender
Major banks have very selective criteria. If you know you have a bad credit rating or a number of unsecured debts, consider finding a specialty lender. Revive Financial can refer people to find loans for those who would otherwise be declined.
Revive Financial Says Yes!
We see things differently at Revive Financial. We specialise in assisting individuals who have faced financial challenges and have been turned down by other lenders. We can help if you have:
- bad credit
- late payments
- defaults
- been bankrupt or in a Part IX (9) Debt Agreement
We offer a range of services designed to help you reduce and consolidate your debts and help you get back on track. Revive Financial prides itself on having experienced non-judgemental staff on hand to help resolve all your debt issues. For free confidential advice please call our friendly team on 1800 534 534.