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7 Common Reasons Why Your Loan Application Was Declined

  • April 25, 2022
  • By Nick Vincent
7 Common Reasons Why Your Loan Application Was Declined

If one or more lenders rejected your loan application, you might not know whom to turn to next or how to re-apply. Determining why your application was denied can help you understand your options, and you can then apply again accordingly.

Once you know the reason, you might better understand how long you should wait before re-applying, components that need improvement on your credit report, and the type of loans or credits you might be eligible for.

Various factors can affect the acceptance of your loan application. Listed are seven common factors that could be the reason for the rejection of your loan application:

  1. Bad repayment history or lower credit score

Every accredited lender scrutinizes your credit score and history to determine whether your application should be accepted. If you have a bad credit score, your loan application could get rejected by quite a few lenders. A few negative repayments on your record could result in loan rejections. 

  1. Short credit history

Lenders check your credit history to analyze whether you will be able to handle the repayments or not. It is believed that most lenders look for a solid record of you managing the loans and repayments. If you have a short credit history, lenders might not be convinced whether you will make be able to make repayments.

  1. Unverified income

If lenders find your income source dubious or not enough, it can negatively impact your application. They usually also look at your recent investments and work profile. With home loans, lenders are bound by law to calculate your ability to repay the loan before accepting or rejecting your application.

Individual lenders look at your work profile and income differently. For example, some lenders might think your income is sufficient, while others may find it below par as compared to their lending standards.

  1. Debt to income ratio

How much you earn per month and how much of it goes into repayments each month is a significant factor affecting your credit score and loan applications. If you already have too much going into repayments, lenders might think you won’t be able to handle another loan, resulting in your application being declined.

  1. Lack of collateral

In the case of small business loans, lenders analyze the owner’s credit if the business isn’t well-established. Most times, the owners must pledge personal assets as collateral. If lenders find you don’t have enough assets to be used as collateral, your loan application might get rejected.

  1. Errors & overestimations

If you make any mistakes in filling out your loan application, you can face a loan denial. Lenders receive hundreds of applications in a day, if not thousands. So, even the slightest mistake or error might lead to the rejection of your application.

Some applications are rejected for home loans or mortgages if an appraisal isn’t high enough to justify your loan amount.

  1. Utilities and monthly expenses

Lenders sometimes check whether you have been paying off your bills on time or not to decide whether to accept your loan application. For example, if they feel your monthly expenses take up too much from your monthly income, they might conclude that you will default in the near future.

Hence, before taking out a personal loan, analyze your recent payment history to determine whether lenders will accept or reject your application.


Your application could be rejected for any of the reasons listed above or the stringent loan requirements of lenders. Each lender scrutinizes your loan application differently and will always have different conclusions. It’s essential to have faith and retrieve after being rejected. Analyze the rejection reasons and look at other options available to you before re-applying for a loan.

By Nick Vincent, April 25, 2022