Personal loan rejection: Reasons and how to avoid it

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When you’re applying for a personal loan, there may be a number of reasons why your application lands in the reject pile. Having a loan application rejected can have repercussions on your ability to access further credit. While there is no fool-proof trick to getting approval, there are a number of steps you can take to avoid rejection.

Young woman looking at her phone smiling

The 4 primary reasons why your personal loan application was rejected

Your personal loan application may have been rejected if:

  • You have a bad credit history. If you’ve taken out loans before and missed repayments, or applied for too many loans, your credit history is likely to be affected. Lenders may take a patchy repayment record, or too many loan applications, as a red flag. As a result, your loan application may have been rejected.
To avoid being rejected, you should check the lender's credit requirements. Some lenders may be lenient and allow for a few negative marks, while others will state that your credit score has to be good.

If you're unsure, it's best to check with the lender before applying. You can also check your credit score with Finder for free. Only apply if you meet the credit requirements.
  • Your income is insufficient. As part of the application process, you’ll have to provide bank statements and details about your income. Lenders generally have a minimum income requirement, which you will have to meet to be eligible. If the lender feels that your income isn’t enough to cover repayments, they may reject your application. The minimum income required differs based on the lender.
  • Your employment may be unstable or insufficient. Lenders need assurance that you will make your repayments on time. The best way to guarantee this is if you have regular income. As a result, lenders consider how stable your job is. For the most part, they prefer stable, permanent employment. Lenders may also look into whether you’re still on probation.
  • You hold too many loans. Lenders will look into all your expenses when determining whether you can afford a loan. In some instances, you may already have other open credit accounts, including credit cards, car loans and a mortgage. All these loans add to your existing financial commitments. Lenders are obliged by law to lend money responsibly. With so many other credit commitments, they may feel that you’re unable to repay the loan.
Before you apply, get a copy of your credit report and look at all your open credit accounts. If there are debts you can pay off, like credit card debt, you should consider doing so. Another option is consolidating your debt. That way, you have one active, lower interest credit account as opposed to several high interest credit accounts. Anything you can do without, like your buy now pay later tab, you should consider paying off.

Personal loan comparison

Now that you know what to look for when comparing personal loans, compare a range of loans below. Once you have compared, you can continue reading to find out what not to do.

1 - 6 of 6
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Name Product Mobile details underline Interest Rate (p.a.) Comp. Rate (p.a.) Rate Type Application Fee Monthly Fee Monthly Repayment
OurMoneyMarket Personal Loan Fixed, 1 - 7 Years, $2,001 - $75,000
Exclusive
OurMoneyMarket Personal Loan
1 - 7 Years, $2,001 - $75,000
5.25%
to 20.99%
5.87%
to 23.83%
Fixed
1.50% - 6%
min. $250
$0
You'll receive a fixed rate from 5.25% p.a. to 20.99% p.a. based on your risk profile.
A personalised loan from $2,001 to $75,000 that varies based on your credit history and financial situation.

Finder Exclusive: Apply before 30th of June 2022 to secure a 0.20% p.a. discount for the full term of your loan.
Harmoney Unsecured Personal Loan Fixed, 3 - 7 Years, $2,000 - $70,000
Harmoney Unsecured Personal Loan
3 - 7 Years, $2,000 - $70,000
5.35%
to 19.09%
6.14%
to 19.99%
Fixed
$275 - $575
$0
You'll receive a fixed rate between 5.35% p.a. and 19.09% p.a. based on your risk profile.
Apply for a loan up to $70,000 and repay your loan over 3, 5 or 7 years terms.
NOW Finance No Fee Unsecured Personal Loan Fixed, 18 Months - 7 Years, $5,000 - $50,000
Exclusive
NOW Finance No Fee Unsecured Personal Loan
18 Months - 7 Years, $5,000 - $50,000
5.95%
to 19.95%
5.95%
to 19.95%
Fixed
$0
$0
You'll receive a fixed rate between 5.95% p.a. and 19.95% p.a. based on your risk profile
Borrow from $5,000 to $7,999 with loan terms between 18 months and 3 years or borrow $8,000 to $50,000 with loan terms between 18 months and 7 years.

Finder Exclusive: Apply and settle an unsecured personal loan of $30,000 or more to receive a $400 Westfield gift card. Ends on June 30 2022.
Latitude Personal Loan Fixed or Variable, 2 - 7 Years, $5,000 - $70,000
Latitude Personal Loan
2 - 7 Years, $5,000 - $70,000
5.75%
to 25.99%
6.68%
to 29.20%
Fixed or Variable
0% - 5%
$13
You'll receive a fixed or variable rate between 5.75% p.a. and 25.99% p.a. based on your risk profile
Apply for what you need from $5,000 and use it for a range of purposes. Repay weekly, fortnightly or monthly. You can check your interest rate before applying with no impact to your credit score.
Plenti Personal Loan Fixed, 3 - 7 Years, $5,000 - $50,000
Plenti Personal Loan
3 - 7 Years, $5,000 - $50,000
6.39%
to 21.99%
6.39%
to 22.79%
Fixed
$0 - $649
$0
You'll receive a fixed rate between 6.39% p.a. and 21.99% p.a. based on your risk profile.
A flexible loan with amounts from $5,000 and terms starting from 3 years. Interest and comparison rates calculated for a loan term of 5 years.
Plenti Variable Rate Personal Loan Variable, 1 - 3 Years, $5,000 - $50,000
Plenti Variable Rate Personal Loan
1 - 3 Years, $5,000 - $50,000
6.39%
to 21.99%
6.39%
to 22.79%
Variable
$0 - $649
$0
You'll receive a variable rate from 6.39% p.a and 21.99% p.a. based on your risk profile
A flexible loan with amounts from $5,000 and terms starting from 12 months. Benefit from transparent costs and a rate estimate before you apply.
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What happens when I apply for a personal loan?

When you apply for a personal loan, the lender will check your eligibility and suitability for a loan based on a number of factors. These include the details you’ve provided, the lender’s own internal criteria, and your credit file. No matter what loan you apply for – whether it’s a personal loan or a home loan – the lender may perform a credit check.

What is a credit check?

A credit check is when the lender checks your credit file for your credit score and details on your credit history. This history includes other loans you’ve applied for and your repayment history. It helps lenders determine what kind of borrower you are – that is, whether you're someone who pays back their loans on time, or someone who has missed credit payments.

Your credit behaviour is reflected in your credit score, which may differ based on the reporting agency. For Experian and Illion, your score will range from 0 to 1,000, while for Equifax the range is 0 to 1,200. Your score determines your creditworthiness. A good score indicates that you have repaid your loans on time and are a responsible borrower. An average or below average score indicates that you’ve missed payments and may be a risky borrower.

In Australia, a good credit score is above 625 for Experian, with excellent above 800. For Equifax, good scores are above 622, with excellent above 833. Average scores are below 624 for Experian and 621 for Equifax.

Some lenders may provide loans for average score holders, but at a higher interest rate. Others may reject you outright. Your credit score, therefore, may play a role in your ability to get credit and in some instances your interest rate.

What happens to my credit score when I apply for a personal loan?

When you apply for a personal loan, the lender may make a hard credit inquiry. This is when the lender requests your credit file from the credit reporting agency. The request is recorded on your credit report and will impact your credit score. A hard credit inquiry must not be mistaken for a soft inquiry. A soft inquiry is when your credit file is checked for reasons other than lending you money. They have no impact on your credit score and do not show on your file. Soft inquiries can include personal credit checks, insurance and employment applications.

What should I do if I don’t have a perfect credit score?

If you have a few negative marks on your credit score, it may be worth working on improving it. This, in turn, will help your applications for credit. Rather than applying and risking a rejection, it may be best to wait it out and build your score.

To improve your credit score, you should work on paying all your bills on time, including utility bills. You should also pay off as much debt as you can and lower your credit card limit.

Avoid applying for too many loans, as this can further affect your score. Too many applications in a short space of time will trigger many hard credit inquiries, which will further affect your credit score. Select a single lender, the loan that suits you best and for which you’re eligible.

Your credit score gets updated every month, so anything you do to improve it will help in the long term.

What can I do to strengthen my application?

Apart from checking your eligibility, income, employment and credit score, it also helps if you:

  • Verify your details. Don’t give the lender a reason to reject your application by filling out incorrect details, or by submitting an incomplete application. Double-check your details before you submit, because the lender will verify them on their end too. Any inconsistencies may lead to a rejection. You should be 100% honest.
  • Check restrictions. When applying, you’ll have to tell the lender why you’re applying and what you’ll use the funds for. To begin with, make sure your reason is credible and that your purpose matches the type of loan you’re applying for. You should also consider if the loan comes with restrictions on how you can use the funds. Some secured loans can only be used to purchase motor vehicles. Others, like green personal loans, can only be used for environmentally friendly upgrades to your house. Your loan purpose may not be covered or may be inappropriate for the loan.
  • Check your collateral. If you’re applying for a secured loan, you’ll find that the lender has asset requirements. This could include the age or value of the asset. If your asset doesn’t meet their requirements, your application could be rejected. Check if your collateral meets the criteria. If you have any doubts, contact the lender before you apply.
  • Apply within your means. You may need the loan, but if you can’t afford it, the lender will not accept your application. Always apply for a loan within your ability to repay, even if it means applying for a smaller amount. You’ll have a higher chance of getting your application approved.
  • Maintain good account history. If you’re applying with a bank, having good banking history can help. Ensure you pay your bills on time, your direct debits are honoured and your account doesn’t go into arrears.
  • Demonstrate you can save. Having a good savings record will tell the lender that you’re responsible with your money. It’s also a good indication that you’re able to manage money and regular loan repayments.

Do buy now pay later and pay on demand apps affect my ability to get a personal loan?

For the most part, this will depend on how you use these services. When you’re applying for a personal loan, you are expected to disclose all your debts. This includes your buy now pay later and pay on demand debts. These debts are part of your expenses and should be accounted for. Having outstanding debts will affect how much you can borrow, as it will be counted as a financial commitment. If your debts are high and the lender feels you won’t be able to pay your personal loan debt, your application could be rejected.

Depending on the service you’re using, there may or may not be a credit check involved. Some services may perform a credit check, so it’s best to look into that. Any hard credit check will appear on your file.

Additionally, if you’ve missed any of your repayments, or paid late, it may have been reported to a credit reporting agency. This, in turn, will have a negative impact on your credit file and how lenders will view your application.

In general, it’s best to approach interest-free products with caution. Being too reliant on them to get by may signal that you’re spending more than you earn. This, in turn, may work against you as the lender may consider you a risky borrower. If you’re using these platforms as a budgeting tool, it’s best to stay on top of your payments and use them responsibly. Demonstrate, through your repayment history, that you’re financially responsible and capable of meeting your financial commitments.

Frequently asked questions

More guides on Finder

Personal Loan Offers

Important Information*
Logo for Harmoney Unsecured Personal Loan
Harmoney Unsecured Personal Loan

You'll receive a fixed rate between 5.35% p.a. and based on your risk profile.
Apply for a loan up to $70,000 and repay your loan over 3, 5 or 7 years terms.

Logo for ANZ Fixed Rate Personal Loan
ANZ Fixed Rate Personal Loan

You'll receive a fixed rate of 8.99% p.a.
Apply for up to $50,000 to use for a variety of purposes without needing to add security. Available to self-employed applicants.

Logo for NAB Personal Loan Unsecured Fixed
NAB Personal Loan Unsecured Fixed

You'll receive a fixed rate between 6.99% p.a. and 18.99% p.a. ( 7.91% p.a. to 19.83% p.a. comparison rate) based on your risk profile
Borrow from $5,000 to $55,000, with 1 years to 7 years loan terms available. This loan comes with no fees for extra repayments and no early exit fees.

Logo for SocietyOne Unsecured Personal Loan
SocietyOne Unsecured Personal Loan

You'll receive a fixed rate between 5.95% p.a. and 19.99% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.

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