Personal loans are hugely helpful for a range of people, at different life stages, and for a wide range of reasons. Whether you need a personal loan for home improvements, or a personal loan to upgrade or purchase a new car, financial services firms like Nectar can help you get quick finance for your individual needs.
Personal loans are also commonly taken out for one-off occasions such as to finance a wedding or fund a once in a lifetime family holiday. Sometimes, they are needed in times of immediate financial need – an emergency loan might be required to purchase a necessary whiteware appliance that has broken down or to fund a medical procedure or medication that you need very quickly. Nectar personal loan applicants tell us they find our service quick and convenient, but not all personal loans are able to be approved.
Are you wary of your next personal loan application being declined? We outline some of the reasons why personal loans are denied, so you can consider the steps you may need to take before you apply for your next loan.
Why would you not get approved for a personal loan?
There are a number of reasons you may not get approved for a personal loan. Some may be out of your direct control, but some you may be able to correct or address. Let’s take a look at the seven most common reasons why you may not get approved for your next personal loan.
1. Your credit score is too low
Credit scores are considered for many finance applications – it could be a personal loan, a credit card or other type of lending. Your application for finance will likely take your credit score into account. Your credit score contains information about your previous approved credit applications and also takes into account whether you have paid your debt off under the terms of your credit agreement. Lenders can access your credit score information to assess your creditworthiness whenever you apply for finance. Consider what steps you’ll take to keep your credit score in good shape.
Information is publicly available about how credit scores work – these types of guides also explain how you can take steps to improve your credit score. Some of the key things to consider include:
- Pay your credit card bills on time
- Pay your outstanding debt or loans on time
- Pay your utility bills on time (including electricity, mobile phone and internet bills)
- Make payments on hire purchases within the agreed timeframe.
Keen to check your current credit score? If your credit score is too low, your loan request may be denied. This free credit check tool can help you understand your rating before you apply.
2. Incorrect information on your credit record
Some people can be indirectly impacted by the information on their credit record being incorrect. If you suspect your credit information is incorrect, you can request a copy of your credit report be sent to you. You can then check your record for any inaccuracies and have your credit record updated before you apply for a personal loan.
Types of credit information that may be incorrect:
- Your personal information is confused with someone else’s personal information,
- A credit provider has wrongly listed a disputed debt,
- There may be a delay in updating your credit information,
- A simple data entry error may have been made,
- Fraudulent use of your personal details or someone impersonating you.
3. You may not be able to service your personal loan
A potential lender needs to know if you will be able to service, or repay your loan. This is to safeguard both the lender, and the borrower. Both parties need to act responsibly when providing finance or applying for it. The Responsible Lending Code outlines the obligations for consumers and lenders and supports informed decision making when applying for finance.
An example of responsible lending is where Nectar requests employment and financial situation details of all applicants. This is so we can assess your ability to make the required loan repayments. Nectar, like other lenders, has an obligation to turn down your loan application if a financial assessment suggests that you may struggle to make repayments, or if the amount you have requested to borrow may leave you in a financially unstable position.
4. You have a large amount of debt
Lenders may consider your debt to income ratio when they assess your application for finance. If you have an unreasonable amount of debt compared to your level of income, they may decline your application. If you have a number of smaller debts, it could be smart to pay some of these before applying for a new personal loan.
Alternatively, structuring your debts into a debt consolidation loan can help you get on top of debt repayments faster and may be considered more favourably than multiple smaller loans.
Bear in mind that a large debt consolidation loan may be viewed negatively if you apply for a new personal loan. Keen to understand more about getting out of debt? We have a handy guide with some super useful tips for you!
5. Your employment is unstable or your income is irregular
Consistent and regular income is the best type of income to have when it comes to applying for personal loans. Consistent and regular income is important for lenders to have confidence that you can make the required repayments.
Consider your employment position before you apply for a personal loan. Have you changed jobs regularly? Just started a new role? Are you a contractor or a permanent employee? Have you had periods of recent unemployment? These scenarios could be factored into a decision to decline your application.
If you’re self-employed, depending on how many years you can provide financial records for your business, you may also be declined. Approaching your bank or a specialist business lender in this scenario could lead to a more positive outcome for you. They will be in a better position to understand your financial history and ability to make repayments.
6. You have poor credit history
Poor credit history can be triggered by making late or overdue payments to your credit cards or loans, or unpaid defaults that can result in your account going into debt collection. Your bank account history can also be a factor – missed payment fees, your levels of overdraft or ‘maxed’ out credit cards. Gambling can also trigger poor credit history if it results in poor financial management.
Your poor credit history can also be generated by the fact that you don’t have enough credit history, so potential lenders can’t easily assess your financial conduct and credit habits. This is typically more of an issue for younger adults.
7. You’re don’t have permanent residency or citizenship
Your visa status could very well impact your ability to obtain a loan in New Zealand. You may not be approved for a personal loan if you are not a permanent resident or a New Zealand citizen. Clearly understanding your visa status is important, and if you’re close to securing permanent residency or New Zealand citizenship, you may choose to hold off on your application until you have your formal paperwork.
What happens if your personal loan is not approved?
We hope you’ll have a better understanding of why your loan may not be approved, having read this article. We’ve provided some good starting points for improving your credit score or making yourself look more appealing to a potential lender.
How to check if you are eligible for a personal loan?
Nectar has a seven-minute online application, where you can apply for a personal loan and receive your personalised interest rate, maximum borrowing amount and repayments options within minutes. Responsible lending checks and credit criteria apply.
If you’re approved for a personal loan, you can have cash in your bank account the same day. Nectar offers unsecured lending of between $1,000 to $25,000. You can also choose the repayment schedule that suits you and when you receive your wages or salary into your bank account.
Got questions? You can chat with our team via our chatbot James, phone or email. We’re always happy to help, and will likely have answered your questions before!
Getting started with Nectar
Need a great rate on a personal loan? We’d love to help with your personal loan requirements. Check out how much you could borrow and learn more about our personal loans. You can get started with Nectar and receive your personalised interest rate, maximum borrowing amount and repayments options in minutes.. Borrow better, faster today!*
*Nectar’s lending criteria and responsible lending checks apply.