At Motor Vehicle Finance, we’re not just about car finance.
Having a personal loan declined can be disheartening, but with a bit of effort and some good planning, you can get your finances back on track. Here are some smart tips to get started.
Why was your personal loan declined?
Your personal loan application can be declined due to a number of factors, including affordability, current debt levels, length of employment, and other individual lending criteria.
But if you’re looking for a bounce-back strategy, it’s a good idea to put aside the guesswork. With a clear understanding of why your personal loan application was turned down, planning your next moves should be easier.
Want to get to the heart of the matter? Don’t be afraid to call the lender and ask them why. It’s also very helpful to check your credit report, which contains a wealth of information about your ‘financial picture.’ A note of caution, though: each enquiry you have on your credit report can negatively affect your credit score, so make sure to request a copy of your credit report when you really need it.
Debt standing between you and your personal loan?
Having a large amount of debt can get in the way of a personal loan application, in two ways:
It may affect your overall affordability for any new debt you take on
Lenders have a duty of care to ensure that you can reasonably afford to meet your debt obligations, as well as your variable and fixed costs.
To determine your affordability, they consider a ‘minimum cost of living calculation,’ using the higher of your declared expenses or their standard allowance. Not meeting these pre-determined affordability criteria may lead to your loan being declined.
It could indicate that you are relying on debt to fund your lifestyle
While a small amount of debt (excluding a mortgage) is OK, a higher debt level may raise a ‘red flag’ with the lender, impacting on your affordability.
Have a lot of consumer debt? Before you apply again for a personal loan, focus your efforts on paying back that debt as quickly as possible. It will show the lender that you are able (and willing) to repay a loan.
Is your credit score getting in the way?
Do you have any defaults on your credit record, or feel you are often playing catch-up with your utility bills or credit card payments?
Either of these things can have an impact on your credit rating, and your personal loan application with it. But remember, credit scores are not written in stone: they can always go up and down, based on certain money behaviours.
For example, if you have a default from an unpaid debt, you can improve your score by paying it off as soon as you can. And of course, the same goes for paying your bills on time. Setting up automated payments can help you keep a consistent schedule, but if you ever find it hard to meet your obligations, always feel free to ask for help – to a financial adviser or (if a loan is involved) to your lender.
Whether you have a plan or need expert help to find the right strategy, it’s always important to be proactive.
How to improve your affordability
As we said, affordability is one of the key factors that lenders take into account when reviewing a loan application.
If you think there’s room for improvement, start by reviewing your outgoings. Are there any costs you can eliminate? Affordability isn’t just about the amount of debt you are paying; it is also about your regular expenses. For example, if you drive a lot, your petrol costs may be higher than standard – and this expense needs to be factored into your application.
Once you know why your personal loan was declined, you can take positive action to fix your financial snapshot – moving you closer to your next (successful) loan application.