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Published May 4, 2023

9 Reasons You Can’t Get Approved for a Personal Loan

A low credit score, too much personal debt and credit report errors are some common reasons why Australians are denied personal loans. Here's what to do about it.

If your application for a personal loan has been denied, you might be feeling a mixture of confusion and panic. Especially if you needed the funds for an essential purchase. 

You can and should ask the lender why your application was rejected. Understanding the reasons why lenders deny applications is the first step toward overcoming this challenge.

Common reasons a loan application is denied

1. Your credit score is too low 

Credit scores can range between 0 and 1,200, depending on the reporting body. The three main credit agencies in Australia are Equifax, Experian and Illion. For credit agencies scoring 0 – 1,200, anything under 660 is deemed as ‘average’. 

Lower credit scores represent more risk to lenders. If your score is below average, it may be the reason you can’t get a loan.

Action to take: If possible, dedicate the next three to six months to strengthening your credit score. Paying more than the minimum monthly repayments, honouring all bill due dates, and limiting your use of credit cards are all tactics that can help. 

2. You don’t know what’s in your credit report 

Errors or old information that can lead to a negative outcome for your personal loan application. Request a copy of your credit report and take the time to go through it carefully. See if the banks are making their decision based on the correct information.

Action to take: Request a free credit report (every three months) through Equifax, Experian or Illion. Be on the lookout for an incorrect name, phone number or address; accounts that you didn’t open; closed or paid off accounts being reported as open; accounts with an incorrect balance; accounts incorrectly reported as delinquent. If you notice any of these things, contact the credit agency directly to get them fixed.

3. You’ve missed credit card repayments 

If you routinely miss due dates or haven’t paid bills in a month or two, lenders won’t want to work with you. These late payments and defaults can stay on your credit report for years, impacting your credit profile and chance of getting a loan.

Action to take: Add reminders in your phone so you don’t miss due dates. Review your budget every week so you can better manage your cashflow. 

4. You have too much personal debt 

Lenders will look at your entire financial life, not just your banking products. Beyond credit cards, you might also have an ATO debt, car lease, business loan or small debts that play into the decision. If they don’t think you make enough money to stay current on all your debt, they won’t let you take out a new personal loan.

Action to take: List all of your debt and take stock of how it compares to your monthly income. What can you confidently handle in repayments each month? Paying down a high credit card balance or paying off a car loan before applying for a new personal loan could strengthen your application.

5. Your income is low or unpredictable 

Whether you work casually, enjoy freelancing or have changed jobs recently, banks want to see predictable income. 

Failing to provide documentation that shows a reliable level of income could be a reason for loan denial. For example, if you’re self-employed and apply for a loan with Westpac, you need to show business income for at least 18 months. 

Action to take: Wait until you’ve had consistent income from the same source for at least three months before you apply for another personal loan. 

6. The loan amount 

Your application might have been rejected because the loan amount was too high, in comparison to your income, current debt, and employment situation. 

Action to take: Investigate alternative options for increasing your cash flow — a credit card, starting a side hustle, getting help from family or friends, and reapplying for a smaller loan. Avoid making multiple applications with various lenders. Every application is marked as an enquiry on your credit report. 

7. The reason you need the loan 

Banks and other lenders often want to know your intended use for a personal loan. While they won’t stop you using it for other reasons, it’s important to explain why you need to borrow the money. If it’s something the lender thinks could jeopardise your ability to repay, they may decline the application.

Action to take: Get specific about what you need the loan for and how you plan to use it in the future. This is also helpful because the lender might be able to advise a different credit type based on your needs.

8. The lender’s requirements 

While all credit providers are bound by Australian law, each bank and lender may have its own specific application requirements. 

For example, Westpac asks for ‘two payslips from your main employer from the last two months.’ CommBank requests loan applications ‘be employed or receive regular income.’ These slight differences can impact the outcome of a personal loan application. 

If you fail to meet any of a lender’s requirements, it can choose to deny you the loan.

Action to take: Understand the lender’s application requirements thoroughly. Talk to them on the phone before you apply online, so you can compile all the necessary documents. 

9. Your loan would violate responsible lending laws

According to the ASIC, credit licensees must follow responsible lending laws. A bank cannot enter a contract with a consumer who is unsuitable for a credit contract. In other words, banks must do their due diligence to ensure you’re able to afford the debt repayments. 

How do banks determine credit worthiness? 

  • By making reasonable enquiries about your financial situation, your requirements and objectives 
  • Taking reasonable steps to verify your financial situation 
  • Making a preliminary assessment about whether the credit contract is suitable for you. 

Banks look at specific details of your financial life to make this decision. 

Action to take: Follow the steps above to ensure your application reflects your ability to afford debt repayments. Ask your bank if there are specific steps you can take to show that you are suitable for a credit contract. 

When will you know if your loan application is approved or rejected?

Again, this depends on the bank or lender. Usually, they review all your documents and within a few days, either reject or approve it. 

Westpac, for example, will get back to you within a few business days. With CommBank, you might receive the answer the same day, if you apply through NetBank. 

In most cases, you’ll know the outcome within a week of applying for a personal loan. It’s not a staged process – you either get approved or you don’t. There are, however, instances where additional documentation may be required, which will delay the process and affect the outcome. 

In general, the bigger the loan, the longer the application process. It’s quicker to get a credit card than a personal loan, but it’s easier to get a loan than a mortgage. Give yourself time to put your best financial profile forward, the next time you apply — if you decide a personal loan is for you.

Frequently asked questions about why you can’t get a personal loan

Can a personal loan be declined after a conditional approval?

Yes, a conditional approval does not guarantee a personal loan; it indicates a lender’s willingness to lend you a certain amount of money, based on the information they have at the time of conditional approval.

Can a personal loan be declined after pre-approval?

Yes, it can still be denied after pre-approval. If your financial circumstances change before the loan closes, it can negatively affect your loan application, and the lender can change its decision.

About the Author

Amanda Smith

Amanda Smith is a freelance reporter, journalist, and cultural commentator. She covers culture + society, travel, LGBTQ+, human interest, and business. Her work has appeared in outlets such as The…

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