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Getting rejected for a personal loan can be disappointing, especially if you have resorted to applying for a loan after exhausting other options. But receiving a personal loan rejection once does not necessarily mean game over. In fact, it may be a good opportunity to better understand your financial standing and form a plan to improve it.

Why was my personal loan application rejected?

It is not advised to immediately reapply after being turned down for a personal loan application. The first step to improve your financial standing for future applications is to understand why the lender refused you. Here are some of the most common reasons why a personal loan application could be declined.

  • Poor or insufficient credit history – If you have a low credit rating, that indicates to the lender that you may struggle to pay off a potential personal loan. Likewise, if there is not enough information about your financial history, lenders may play it safe by declining your application. The big banks tend to be stricter with their lending criteria.
  • Too much debt – If you’ve taken out multiple loans in the past few years and are still holding them, this could be a red flag for lenders. Lenders will look at the number of financial commitments or liabilities you have as part of their assessment.
  • Not enough income – If the lender finds that you don’t make enough money to be able to meet loan repayments, they will most likely refuse to lend you funds. Often, the lender has minimum income requirements. As lenders are obliged by law to lend money responsibly, they may handle any perceived inability to pay off the loan with caution.
  • Unstable employment or income – If you have switched jobs several times in a short period of time or cannot demonstrate a stable working history, this may be a warning sign for lenders. Some lenders may also reject personal loan applications if you have not yet passed your probation period at work.
  • Credit reporting errors – Mistakes can happen that can severely impact your credit score. Examples of errors that may occur include one debt being duplicated on your credit report, an incorrect debt amount, or the report may overreport the number of loan enquiries you have made.

Should I apply for a personal loan even if I’m not eligible?

While there is no sure-fire way to get approved for your personal loan application, that doesn’t mean you should give it a go if you know you don’t meet the minimum requirements. Likewise, you probably shouldn’t be casting a wide net by making multiple applications. All new loan applications and rejections show up on your credit history, and these can potentially taint your track record to future lenders.

It’s also best to be honest on your personal loan applications. Not telling the whole truth will likely come back to bite you with a personal loan rejection, as lenders are generally experienced in spotting fabrications on loan applications.

What should I do if I my personal loan is rejected?

  • Learn from the rejection – It’s important to understand why your application was rejected. Ask the lender for feedback. If the reason for the rejection was due to your credit report, the lender can let you know which credit reporting body they used, and you can investigate this further.
  • Talk to your lender – The next time you make an application, it’s a good idea to have a chat with the lender about your borrowing power and prospects before applying. They can give you an indication if you should improve your situation before applying again.
  • Try another lender – Consider applying with a different lender, as they might have different assessment criteria. However it may not be ideal to apply again until you fully understand why you were rejected for your previous personal loan application.
  • Build up your credit rating – Before you make your next personal loan application, it’s a good idea to improve your credit score. This might take some time but remember that borrowers with a higher score are considered by lenders to be less risky and are more likely to be approved for a loan. As lenders generally want to do business with quality borrowers, those with higher credit ratings may have stronger bargaining power and can save money in the long run.

How can I improve my credit score and borrowing power?

  • Comb through your credit report – Credit reports can generally be obtained for free from most online providers, unless you need a copy quickly or if you request a credit report more than once a year. Understand the listings on your credit report and look for any errors. If you do spot mistakes, contact the relevant credit provider or credit reporting agency to fix it.
  • Clear some debts – Consider paying off any debts where you can. The fewer debts you have or the less money you owe, the better you might look to lenders. If possible, make extra repayments to pay debts down sooner.
  • Pay on time – Get into the habit of paying things like rent, mortgage repayments, bills and credit cards on time. Remember that late payments may also affect your credit score.
  • Save money – Lenders want to see whether you have positive financial habits, including paying your bills on time and having a good amount of savings in the bank. If you can demonstrate this track record, your borrowing and bargaining power may be elevated.

Frequently asked questions

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

Can I get a bad credit personal loan with a guarantor?

Some lenders will consider personal loan applications from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).

If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the repayments.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.

Can I get a self-employed personal loan with bad credit?

It may be much more difficult for a self-employed borrower to successfully apply for a personal loan if they also have bad credit. Many lenders already consider self-employed borrowers to be riskier than those in full-time employment, so some self-employed personal loans require borrowers to have excellent credit.

If you’re a self-employed borrower with a bad credit history, there may still be personal loan options available to you, such as securing your personal loan against a vehicle of equity in a property, though your interest rates may be higher than those of other borrowers. Consider contacting a lender before applying to discuss your options.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.

How long does it take to get a bad credit personal loan?

In the best-case scenario, an application for a bad credit personal loan can be made within minutes and then be approved within 24 hours. However, if a lender needs more information or needs more time to verify the provided documents, the application process may take longer.

How are credit ratings/scores calculated?

Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.

They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.

Your score can change if your demographic profile changes or new information is added to your file (such as a new loan application) or existing information is removed from your file (i.e. because it has reached its expiry date).

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

How do I consolidate my debt if I have bad credit?

The worse your credit history, the harder you will find it to consolidate your debts, because lenders will be less willing to lend you money and will charge you higher interest rates.

However, people with bad credit histories can make debt consolidation work by following this three-step process:

  1. First, find a lender willing to give you a bad credit personal loan. This process will be simplified if you go through a finance broker or use a comparison website like RateCity.
  2. Second, make sure the interest repayments on your new loan are less than the repayments on the loans being replaced.
  3. Third, instead of spending those savings, use them to pay off the new loan.

What interest rates are charged for personal loans?

Lenders aren’t allowed to charge interest on loans of $2,000 and under. Instead, they make their money by charging a one-off establishment fee of up to 20 per cent and a monthly account-keeping fee of up to four per cent. Lenders might also ask you to pay a government fee.

For loans between $2,001 and $5,000, lenders can make their money in only two ways: a one-off fee of $400 and annual interest rates of up to 48 per cent.

For loans of $5,001 and above, or for loans that have terms longer than two years, lenders can charge annual interest rates of up to 48 per cent.

Those fee caps don’t apply to loans offered by authorised deposit-taking institutions such as banks, building societies or credit unions, although such institutions are highly unlikely to charge interest rates of anywhere near 48 per cent.

What are the pros and cons of personal loans?

The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.

One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.

What is a credit rating/score?

Your credit rating or credit score is a number that summarises how credit-worthy you are based on your credit history.

The lower your score, the more likely you are to be denied a loan or forced to pay a higher interest rate.