What To Do If Your Loan Has Been Declined

March 10, 2022

Getting declined for a loan can be stressful. But it shouldn’t be: it happens to practically everyone at some point; the key is how you react.

Here we will look at why you were denied a personal loan in the first place and what you can do.

Then we’ll look at how lenders like FatCatLoans, which employ Open Banking technology to base lending choices on affordability, might be able to help. Keep reading to find out more!

Five reasons why you might be denied a personal loan:

So you’ve been turned down for a personal loan. Why?

One of the things that makes rejection difficult is that you aren’t always informed why the lender denied your loan.

There are several possible reasons for rejection, and while it may appear to be concerning, there is nothing to be concerned about in many cases. First, we’ll go over some of the most common reasons for personal loan rejection in this section.

Your credit score is low

Your credit score is a simple “grade” based on your track record of repaying loans, credit cards, and other forms of borrowing on time.

Most lenders analyse your credit history when considering whether or not to give you money. They prefer people who can manage and return their debts without late payments, defaults, or items like County Court Judgements (CCJs), which are red lights on a credit check.

Many lenders will reject applicants with low credit scores. However, you may still be eligible for a loan elsewhere (don’t reapply straight away – more on that later).

Alternatively, work on boosting your credit score to increase your chances of getting credit in the future.

If you don’t have “good” or “excellent” credit, you may learn more about your alternatives in our guide to building your credit score.

You may not meet the lender’s requirements

A good credit score is unlikely to be the sole factor lenders consider. While many lenders will grant credit to those over 18, some will have a larger limit. In that situation, you can either wait or switch providers.

Some lenders have commercial criteria

Lenders are businesses like any other, and they need to make money to survive. That implies the loans they write must be profitable, and you may not be a profitable customer (usually because the business cannot charge you a high enough interest rate).

As a result, even the “best” borrowers will be turned down from time to time.


A lender needs to know that a borrower can afford to repay a loan. On the one hand, it can look at the borrower’s credit history, but even the greatest intentions won’t help if the repayments are too large.

As a result, responsible lenders will only offer you loans they believe you can readily return.

If you’re worried about affordability (for example, a low income), the most straightforward approach is to ask for a smaller loan amount.

A credit file error

Lenders (CRAs) will obtain a credit report. Canada has two:

Those agencies do their best to keep their information up to date, but mistakes do happen. In some cases, this is simply an oversight; in others, it could result from fraud.

That is why each of these agencies allows you to check your score for free. You can request that any errors are corrected, and the agencies are required to do so as soon as possible.

Lenders will disclose which CRA they use so that you know which one you’ll need to check.

What not to do if denied a loan

Don’t panic if you’ve been denied a loan; think before you act. Two things to avoid:

Don’t keep applying

Remember that applying for a loan or credit card creates a mark on your credit file that other lenders can view. Lenders expect you to browse around. A flurry of applications can appear eager for credit to a lender in a short period.

Do not apply for a cash advance loan

It may be tempting to seek a short-term loan (defined as an unsecured loan with an APR above 1,000 percent due within 12 months).

These kinds of loans are often a bad idea: not only is the interest payable very high, but it can also harm your future credit prospects. In addition, the borrower is considered unreliable and unable to manage their finances well.

What to do if you are denied a loan

A loan denial gives you three options:

  • Find a new lender (without firing off too many applications)
  • Rebuild credit and reapply later
  • Abstain from borrowing

Find a new lender

As previously stated, you must limit yourself to only a few more loan applications to protect your credit report. To get extra protection, use an eligibility calculator to determine whether you’re likely to be accepted for a given loan or credit card before applying.

You can also look at different loan types; for example, Open Banking lenders like FatCatLoans use Open Banking technology to securely view your bank account data, allowing them to check that a given loan is affordable for you securely.

This means that they can base lending decisions on affordability and your credit score, which may result in a different outcome if you apply for a loan. 

Depending on your needs, a credit card may also be appropriate, but keep in mind that high-interest rates on credit cards add up over time unless you pay them off in full each month.

Borrowing from friends and family, credit unions, or remortgaging if you’re a homeowner are also options.

Rebuild your credit score and reapply later

Your credit score will typically improve when you settle debts, prevent late payments, pay off your overdraft, and register to vote.

It won’t happen immediately, but modest measures can significantly improve. And you can track it for free. It will be easier to borrow money to enhance your credit score.

What credit score is required for a personal loan?

It’s possible to get by without borrowing money at all. Maybe you have savings, or the purchase wasn’t necessary. You may also be able to buy it outright by delaying it for a few months.

Does a rejection of a loan affect your credit score?

Strangely, no. An unsuccessful credit application won’t influence your credit score because of the credit file records that you applied, not whether it was successful.

So don’t take this as a reason to keep applying for credit even if lenders have declined you.

Frequently Asked Questions

What happens if you are denied a loan?

If a lender rejects your application, they will contact you.

The lender may not tell you why they rejected your application, but they will tell you which credit reference agency they used, allowing you to check your score and amend any problems on your file.

Getting a loan after being denied

There are hundreds of lenders out there, and getting denied by one doesn’t imply another isn’t better.

Making too many applications can damage your credit score and appear as a sign of financial difficulty. An eligibility calculator can help here.

When may I reapply for a loan?

While you can apply for a loan with a different lender straight away, it’s worth considering your options. Over-applying for loans can appear as financial difficulty, making loan approval even more difficult.

If you want to switch providers right away, you can, but if you’re going to raise your credit score first, you’ll need to stick with it for a few months.


Most of us will be denied credit at some point. But, as shown above, what matters is how you react and what you do next.

The worst thing you could do is panic and apply for everything. Instead, take a deep breath, examine why you were rejected, and adapt your approach accordingly.

Remember that credit ratings aren’t the main element in a loan decision.