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Common Reasons Loan Applications Get Declined

Getting rejected sucks. Whether it's for a job, a date or a loan application, being told "no" is never a good feeling. But don't despair; you can bounce back from all three.

If you get knocked back for a loan, it's okay to feel disappointed. In the world of Comprehensive Credit Reporting, your credit scores take a hit, and you're left with that hard enquiry for up to five years. Not the outcome you were hoping for, but you can rest easy knowing there was probably a reason your application was declined. 

If you're left scratching your head over the decision, here are a few common reasons loan applications get declined.

Serviceability

Ever wondered why lenders ask for a copy of your bank statements when you apply for credit? It’s because they need to assess your cash flow to determine whether you can actually service the loan. If your discretionary spending the fun stuff is draining your bank account every pay, it could indicate that your current lifestyle can't support any additional repayments. 

Likewise, if your living expenses are astronomical, it would be irresponsible for a lender to grant you a loan that you simply can't afford to pay back, particularly if it might adversely impact your life. 

A few tips for improving your loan serviceability:

– Reduce your discretionary spending

– Got a credit card? Consider reducing the limit

– Consider ways you might be able to reduce your living expenses within reason

– Demonstrate that you can put money aside each month by transferring it into a savings account and leaving it there!

Action

Considering taking out a loan? Our team have rounded up all the 'must-knows' and 'must-dos' before you hit submit. Read this before applying for a personal loan.

Online Gambling

Placing a bet on your favourite footy team might seem pretty harmless, but for people who struggle to keep it under control, online gambling can be considered a red flag for lenders. It's considered a 'high-risk behaviour' and may disqualify you from accessing credit, especially if the amount you're spending on gambling hinders your cash flow and serviceability.

Note

If you’re struggling with problem gambling, you can access support from Lifeline, Gambling Help Online or the National Debt Helpline.

Credit Scores

Your credit file holds important information about your financial history, but the number attributed to it is a powerful factor in determining your creditworthiness. 

Generally, applicants with higher scores are more likely to be able to access credit and potentially unlock a lower interest rate. A lower credit score can limit your borrowing capacity, increase your interest rate and sometimes even disqualify you from accessing a loan at all.

Your credit score may be sitting rather low for several reasons – you made multiple hard enquiries in a short space of time, you have several debit dishonours, or you've missed credit card repayments. In the case of a 'thin file,' you simply might not have a long enough financial history to determine your creditworthiness.


Tips for improving your credit scores:

  • Always pay your bills on time auto-transfers are a huge help

  • Keep the number of hard enquiries, including loan and credit card applications, to a minimum

  • Review your credit reports regularly and keep an eye out for errors

Action

Read our Credit Scores Smart Guide for everything you need to know about reading, understanding and sharpening up your credit reports.

Employment Status

Unfortunately, lenders can't just "take your word for it" when you tell them about your employment status. They need to do their due diligence to maintain their responsible lending obligations, so they might conduct an employment check to verify where you're working and how long you've been there. 

If you've exaggerated your income, title or time with the company, that might give a lender grounds to decline your loan application. If it turns out that you're no longer with the company you named on your application, it's likely to be a 'hard no' from the lender.

As always, honesty is the best policy. Ensure you are 100% truthful in your application, as the truth often comes out in the end.

Debt Collection

If you're constantly falling behind on your loan repayments, your debt may be sent to "collections" in order to bring your repayments back up to date This might be an internal process conducted by your lender or, in some cases, your debt may be sold to a third party to chase up.

Your missed repayments will be logged on your credit file, and any relationship you have with debt collection agencies might be recorded for future lenders to see. Any payments you make to the collections agency might also be visible on your bank statements.

So, if you've previously had a loan that has fallen into arrears, this may give a lender grounds to decline your loan application.

Note

At Wisr, we have a dedicated financial assistance team that can help if you’re struggling to make your repayments. If your situation has changed dramatically and unexpectedly, you're entitled to support.

Financial hardship can sometimes occur due to a job loss, break-up, natural disaster or, you know, a global pandemic. The best thing to do is address it before you fall into arrears.

Get in touch with your lender and discuss the possibility of putting your repayments on hold or reducing the amount for a certain period of time until you can get back on your feet.

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Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Services does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.

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