Understanding why your client's personal loan application may be declined

Posted 01-11-2018
an image of a couple analysing their credit report


While there are many success stories, occasionally lenders decline loan applications. You can help your clients take back control of the situation and decrease the chances of their loan application getting declined. Here are a few common reasons why applications for a personal loan may be declined: 

1. Insufficient credit history
Your client may have insufficient credit history to generate a credit rating, and therefore lenders are unable to assess their credit conduct. This is because there may not be enough information on your client’s credit history to generate a credit rating.

2. Poor credit history
Your client’s credit report may reveal negative information such as late or missed payments. A poor track record can be one of the reasons a lender declines a loan application. 

It is also important to note that when your client applies for a personal loan and consents to a credit check, an enquiry is generated on their credit report.

3. Incorrect information on your client's credit report
The accuracy of the information on your client’s report may be critical to whether a loan application is approved or declined. Errors may impact their credit score and affect their ability to get a loan. Your clients may be able to obtain a copy of their credit report to check the accuracy of the information from:

4. Inability to service the loan
Lenders have an obligation to lend responsibly under the National Credit Act. This means a suitability assessment will be conducted on whether a loan meets your client’s requirements and objectives and whether they can make their repayments without substantial hardship. This involves making inquiries about your client’s financial position and verifying that information.

For a lender to do this effectively your client must provide an accurate picture of their financial position and must be able to make their loan repayments based on the loan amount, income, liabilities and expenses.

Use our serviceability calculator for an indicative result of serviceability prior to submitting an application.

5. Large amount of debts
Although a personal loan can be a way to consolidate existing debts, the loan application might not be successful if the total amount of debt owing is too large. Lenders will consider the percentage of your client’s income that goes towards paying your existing debt (known as your debt-to-income ratio) when assessing the loan application.  A large debt to income ratio may be considered unfavourable.

6. Instability in employment and irregular income
A stable employment history is important for lenders when assessing your client’s financial position. Clients that consistently change jobs every few months or that are unable to prove a regular income may have their loan application declined.

There is no sure-way to guarantee that your personal loan application will be approved but having a good understanding of why an application may be declined will help you and your client make an action plan.

Pepper Money will assess all personal loan applications based on credit score and require your clients to have a good credit rating and regular income to be eligible for our personal loan product.