There are several reasons why your loan application could be rejected, including affordability, a bad credit score and unstable employment or income.
Overview
There are different types of personal and business loans available in South Africa for people who need to borrow money from a financial institution.
In order to secure this loan, your loan application will be assessed, and if it is believed that you will not be able to pay it back, your application will be rejected.
Different types of loans in South Africa
Sometimes, there are financial burdens that are just too large to solve on your own. The most logical answer to this is to borrow the money that you need from a financial institution.
These financial institutions offer different loans for business or personal use, which could be paid off in the short or long term, depending on what suits your needs best.
In South Africa, there are loans for just about any of your big financial decisions, such as personal loans, instalment loans, home loans, vehicle financing, student loans and more.
Why you keep getting declined for a loan in South Africa
When it comes to loan applicants, financial institutions like banks, will all have their own minimum requirements and screening process for their applicants.
Financial institutions lend people or businesses big sums of money, because they expect that this money, along with some interest and added fees will be paid back to them in full, eventually.
These financial institutions look at a variety of factors regarding your financial situation, including your income, how many people are dependent on your income, where your income is coming from, what your financial and credit history looks like, and many more factors to determine whether you can afford to eventually pay back your loan.
When banks assess you as a loan applicant for affordability, they will look at how much discretionary or disposable income you have left after you have paid your other expenses and debt in a month.
However, banks also consider other factors when they are assessing your financial situation and there are a few different reasons, besides affordability, why you would be declined.
Credit history
A bad credit history is one of the reasons why most loan applications are rejected. Credit bureaus look at a few different factors to determine your credit history and credit score.
This includes your payment history, what kind of debt you accumulate and what caused this debt. This means that if you have a history of missed payments or defaults, your loan application will most likely be declined.
However, if you have no credit history at all, this may also lead to a rejection, since the financial institution has no way to assess if you can be trusted to make payments regularly.
It is always best to know your credit score before you apply for a loan, so that you can find a loan that you can actually afford.
That being said, too many credit checks can also be seen as “loan shopping,” which may lower your chances of being approved for a loan.
Employment and income
If you have an inconsistent employment or income history, financial institutions may be hesitant to approve your loan application.
The institution that is lending you the money wants to be assured that you will be able to have enough income for the near future, so that you will be able to make payments towards the loan.
These institutions do not usually care where your income is coming from. For example, self-employed people do not have a lower chance of being approved, as long as this income is consistent and stable.
What to do if your loan application is declined
Clearly, a loan can be declined for any number of reasons and the best way to ensure that your future loans do not also get declined, is to review your decline notice, to figure out what exactly the problem with your loan application was and then work to solve this problem, for example:
| Reason for declined loan | Possible fixes |
| Affordability | Pay off some of your existing debts to lower your expenses and lower your debt-to-income ratio. |
| Credit history | Increase your credit score by paying your debts on time and paying more than the minimum amount. |
| Employment and income | Find new, consistent streams of income. |
Final thoughts
Borrowing money from a financial institution is a great option if you do not have the capital for an expense, upfront.
However, your loan application can be rejected if it is believed that you cannot afford the loan, have bad credit or an inconsistent income, but fortunately, you can work on these issues to apply for a different loan.
