Why was my personal loan declined? Personal loans can be declined for myriad reasons. The most common ones I see are:
Reasons your personal loan may have been declined:Insufficient income.Poor credit score.Poor account conduct.Insufficient time in your current job.
Insufficient income
The most common cause of a personal loan being declined in my experience is a lack of income. Whilst the online calculator may say you have enough income, or your own calculations may say so, each lender calculates affordability (serviceability) differently.
Lenders can calculate income & expenses very differently, which can work against you. You can also use this information to find a lender that will approve your loan.
Different ways lenders will calculate income:Most lenders will use NET salary credits to your bank account, averaged over 90 days.Some lenders will use 180 days' salary credits.Some lenders will use net YTD on your pasyslip.For Centrelink income, different lenders will accept different figures.
Different expense calculations lenders will use:Living expenses: all lenders have different minimum living expenses for affordability purposes.Including your partner's income: some will use $0, others will use their actual income (without adding them as an applicant), others will split in 50/50 without evidence.Rent/board: even if paying $0, most lenders will use $650p.m. as a minimum figure.
We can help you figure out which lender will give you the most generous affordability calculations in your circumstances. Whilst not always, this can give you approval options where you've been declined elsewhere.
Poor Credit Score.
Poor credit scores are relatively common, and will often result in a declined personal loan application. Different lenders have different cut-offs and expectations for your credit file. You should always use your Equifax Score as most lenders will use this exclusively.
Reasons your credit history may be insufficient:
Reasons your credit history may get your personal loan declined:An Equifax score below 550 will get you declined with a lot of lenders.Any default on your credit file.A previous bankruptcy will get you declined from certain lenders. Even if it's not on your credit file, some lenders check the Insolvency Register for past bankruptcies.If your credit file is less than 12 months old.Missed payments on your credit file.Financial hardship on your credit file.One or more payday loans showing.
We can usually assist clients in finding a lender to approve their loan in the following circumstances:
- Credit score must be above 400 in all cases. For loans over $15,000, we'll need a credit score over about 550.
- We can accept one small default. It must be paid over 2 years ago and under $300.
- We need any missed payments to be rectified and over 1 month old.
- Previous bankruptcies aren't an issue if they're not on the credit file, and disclosed to us upfront.
Poor Account Conduct.
In many cases, the lender will want to see 90 days' bank statement on your main bank account and/or any existing loans.
Reasons your bank statement conduct may get you declined:More than 2 failed direct debits or overdrawns.Any debt collection activity.Excessive gambling or cash withdrawals.Payday loans or wage-advance type facilities.Undisclosed liabilities.
Some lenders will accept different amounts of 'poor conduct', and some lenders won't need to see bank statements. There may be options depending on the reason for the decline.
Insufficient time in your job.
Each lender has a minimum time-in-job requirement. The following are acceptable to our lenders (but perhaps not to the lender you applied with):
Acceptable time in job with our lenders:Permanent without probation: We just need your 1st payslip.Permanent with probation: if you're in a similar role/industry to your previous role and had a gap less than 28 days, we just need your first payslip. Otherwise, we need 3 months in job.Casual: 4 months' minimum, 6-12 months with most lender..Under an ABN: 12 months with some lenders, 24 months with most..
What can I do once my personal loan has been declined?
Talking to us is the easiest way. We can't help in all situations, but we can give you a good shot. We can at least tell you the reason for the decline. We can generally assist if:
Feeling confident your final home loan application will be successful after pre-approval is something a lot of us experience. After all, the definition of ‘approval’ means to officially accept or allow something.
However, it’s not that simple when it comes to home loan pre-approval. A pre-approval is just a preliminary step in the mortgage application process, not a guarantee that your home loan will be successful.
In this article, we’re going to take you through some of the common reasons home loan applications are denied even after pre-approval, and what you can do to stop this from happening in the future.
- What is home loan pre-approval?
- Reasons a home loan can be rejected even after pre-approval
- What to do if your home loan has been denied after pre-approval
- Things you can do to avoid rejection after pre-approval in the future
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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of December 4, 2022. View disclaimer.
What is home loan pre-approval?
Home loan pre-approval is an initial assessment from a lender where they agree to lend you money towards the purchase of a home before you’ve even found it.
At the pre-approval stage, nothing is final. It basically establishes your financial position with the lender, and gives you some peace of mind in knowing your borrowing capacity so you know what type of house you can afford.
See Also: How does home loan pre-approval work?
Reasons a home loan can be rejected even after pre-approval
Home loan rejection isn’t fun, especially after you already thought you received the pre-approval green light from your lender.
“It is important to remember that pre-approval is highly conditional and is based on certain conditions and if any of these conditions change, it can affect the final approval decision,” Angus Gilfillan, CEO and co-founder of digital-first mortgage broker Finspo told Savings.com.au.
Here are some of the most common reasons a lender may deny your home loan application even after pre-approval.
1. Your financial circumstances changed
If your personal or financial circumstances have changed since you were pre-approved, your application may be denied. This could mean anything from having your work hours reduced or losing your job.
If you’re earning less income, a lender may think your capacity to make loan repayments has diminished which can make them nervous.
Remember, lenders have a responsibility to ensure borrowers can repay their home loan comfortably. So, make sure to maintain your income and expenditure wherever you can.
2. Your credit score is low
If your credit score falls below a certain number, a lender may decline your home loan application.
“If something has happened on your credit history, such as a default on your phone bill or another loan, your credit score will be downgraded,” Mr Gilfillan said.
Missing credit card payments or taking on new debt can also negatively impact your credit score and thus derail your chances of a successful home loan approval.
3. You changed jobs
Switching jobs while you’re in the midst of pre-approval and applying for a home loan probably isn’t a wise decision.
A lender bases their loan approval decision on the information you initially provided them with. So, if you change jobs during this time, your employment status is categorised as unstable, which in the lender's eyes, deems you as a risky borrower.
4. The lender’s credit policies/criteria has changed
If a lender makes policy changes, such as stricter lending conditions, that you no longer meet, they could reject your home loan application.
5. Interest rates have increased
Your ability to make home loan repayments can be affected by interest rate rises.
If rates have increased in the time between your pre-approval and home loan application, a lender may reassess your application to determine whether you’ll be able to service the loan with a higher interest rate.
To prevent this from happening, you may be able to lock in a fixed interest rate for a specific period of time before the entire home loan application is finalised.
6. The property doesn’t qualify for a home loan
Some lenders are hesitant to approve home loans for properties in disaster-prone areas, studio apartments, some high-rise developments, properties in high-risk suburbs (due to price volatility), and properties that may be difficult to resell in the future.
Ask your lender what types of properties fall under this category before you begin searching for your home so to avoid rejection later down the line.
7. You omitted information from the lender
If a lender finds out you omitted information or lied to them when applying for pre-approval, your home loan application can be denied. As with anything, you want to be truthful with the information provided.
Of course, there are other reasons an applicant may have their home loan denied after pre-approval, however the seven listed above are the most common that should be avoided where possible.
What to do if your home loan has been denied after pre-approval
So your home loan has been denied after pre-approval but you don’t know what next steps to take to turn this around.
The first thing to remember is to hold off from applying for pre-approval from another lender, no matter the reason for your rejection.
“It can be a good idea to avoid trying to get pre-approval from too many lenders in a short period of time, as this in itself can impact your credit rating,” Mr Gilfillan said.
“It’s also important borrowers know why they did not get final approval from a lender and that they address the key issues before next seeking pre-approval.”
For instance, if you were denied because of your spending habits or credit history, it may be best to wait three to six months to get your finances back on track before you apply again.
Here are the following things you might need to do to turn your rejection into acceptance for next time:
Stay in your job for the recommended period of time before applying for another loan
Submit more documentation such as income, assets, etc.
Find a property that the lender is willing to accept i.e. meet the criteria
Work on improving your credit score
Find a lender that is more suitable to your circumstances
Any other suggestions your lender may recommend to you
If you’re still unsure what to do and are in need of a little help, try speaking to a mortgage broker. They’ll be able to point out what to change when you next apply for pre-approval and can make sure the process runs smoothly.
Things you can do to avoid rejection after pre-approval in the future
For those of you that are starting the home loan journey for the first time, there are some easy things you can do to increase your chances of approval.
Make sure all the details in your application are accurate - don’t lie or omit important information.
Pay off any debt, reduce credit card usage, and avoid taking on new liabilities during the pre-approval and application stage. This will improve your debt to income ratio and also boost your credit score.
Save wherever you can. A savings account partnered with a large down payment will increase your chance of being approved for a home loan even after the pre-approval stage.
Ask your lender about what types of properties they will and won’t accept under their lending criteria.
Don’t change jobs - most lenders require an applicant to be in their job for a minimum of 6 months and usually have completed their probationary period.
Talk to a mortgage broker as they can help you find a lender where you have a better chance of getting approved for a home loan.
According to Mr Gilfillan, these are the three key steps a borrower should undertake to prevent themselves from being denied for their home loan after pre-approval.
“It’s important to know on what basis you have been pre-approved, so you know the impact of any decisions you make regarding either your finances or the property you are looking to purchase,” he said.
“Ideally, you want to have a buffer in your finances so that small changes to your income or expenses won’t impact the final credit approval.
“And, if you have a broker, it’s always a good move to let them know if you expect a change in your circumstances as soon as you can, that way they can assess the situation and let you know if the changes are likely to impact your home loan approval.”
Savings.com.au’s two cents
Applying for a home loan can be stressful enough without the added factor of being denied after receiving pre-approval.
You have to remember that pre-approval doesn’t guarantee you will get the loan. The only time you can be 100% certain that the loan is yours is when you close the deal - a lot can happen to derail your chances during the pre-approval and final stage.
One of the top things you can do to ensure you’re successful is maintain the status quo throughout the entire loan process. Don’t be late on your credit card payments, don’t change jobs, and don’t spend money on unnecessary things. In other words, keep all your finances the same.
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Disclaimers
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.