How to Avoid Being Rejected For a Loan

How to Avoid Being Rejected For a Loan

Written by Veronica Ott
Fact-checked by Caitlin Wood
Last Updated October 19, 2020

It is never fun being rejected, especially when it comes to loans. The important thing is to stay positive and remember that consumers get rejected for loans all the time. There are countless changes you can make to better your financial situation and get approved in the future, by no means is one rejected loan the end of the road.

Before you apply for a loan, make sure you read this.

What Is Loan Approval Based On?

Every lender has their own unique loan requirements. If you get rejected by one lender, it does not mean that you will never be eligible for a loan because every lender is different. Typically, lenders consider the following factors.

Credit Score, History, and Report

A high credit score and an exceptional credit history communicate to lenders that you are able to handle your finances effectively thereby making you an excellent loan candidate. Keep in mind that the opposite is true, a low credit score or limited credit history communicates to lenders that you may not be an ideal candidate, leading to possible rejection.

Canadian Credit ScoreCheck out this infographic for more information about your credit score.

Employment History

Many lenders tend to be concerned about stable and consistent employment in their candidates. If you have irregular employment or sporadic history of employment, this can indicate that you may default on a loan as your income may not be able to support loan payments

Income and Expenses

If you have a lot of expenses compared to your income, the lender may perceive you as a high financial risk because you’re more likely to default on payments. Your income should easily be able to cover your expenses plus future loan payments. Some lenders require a copy of your bank statements to understand your spending habits.


There are usually limitations on what lenders can use as collateral depending on the loan type.

Down Payments

The higher your down payment is, the smaller your loan will be. Lenders prefer candidates who make large down payments because it reduces their risk since loan payments and interest will be lower. Also, certain assets are preferable for loans in the event they must be seized.

Check out the wide variety of loan types available to Canadian consumers.

Common Reasons Why People Are Rejected For Loans

There are many common reasons why individuals are rejected for personal loans. Some reasons may be more complex than others, being aware of the reason why you were rejected is the first step to a solution.

Common reasons why people are rejected for personal loans:

  • Bad credit score and history that did not meet lender requirements
  • Limited or no credit history
  • Insufficient income compared to lender requirements
  • Lender does not allow loans for your desired purpose
  • Errors or inaccuracies in your application resulting in the lender being unable to verify your personal information
  • Unstable employment or sporadic employment history
  • Too many existing loans
  • Assets to be used to secure the loan as collateral do not meet lender requirements
  • Did not meet other requirements of lender such as age and residency

The True Cost of BorrowingEver wonder what the true cost of borrowing is? Click here.

How To Improve Your Chances of Getting Approved

Instead of accepting a rejected loan, take the time to understand your financial position and why you were denied. Even though there is no way to 100% guarantee a personal loan will be approved, there are several steps you can take to better your odds. By understanding your finances and the lender’s requirements, you can figure out what you need to improve and to work toward a successful loan application and approval.

Credit Score, History and Report

Since credit scores and history are crucial, it is useful to review your credit report. You can obtain a copy of your credit report for free from Equifax and TransUnion, the two Canadian credit bureau, every 12 months. Look over your free credit report for errors and other details that may be flagged by a lender. Errors in your credit report can negatively affect your credit score (click here to learn about the five most common credit report errors). If you find an issue, dispute it with Equifax and TransUnion. In addition, take note of what your actual score is, a good credit score is considered to be 650 or higher.

It is possible to reach out to lenders about their credit score requirements. Using the lender’s information, you can evaluate your credit score against their requirements to determine why you were rejected and what you need to improve on for the future.

To improve your credit score, you can create a realistic budget to manage your finances better, make payments on time and avoid opening new accounts as this indicates financial hardship.

Employment History

Check the employment requirements of the lender, especially if you are an individual with uneven, sporadic employment. Possible requirements are being employed by one company for a specified period of time and receiving consistent income to your bank account via direct deposit.

Income and Expenses

Check the lender’s website for the minimum income requirements before you apply. In addition, try not to possess too many loans because this can indicate to a lender that you will struggle to repay the new loan you are applying for. If you have several loans already, consider paying off or combining them before you apply for a new loan.


Providing collateral to back up your loan could improve your chances of getting approved because it adds an extra layer of protection for your lender. Make sure you compare the asset you intend to use to secure a loan against the lender’s requirements for collateral.


If you can, make a higher down payment on the asset related to the loan you are applying for because it will reduce the lender’s risk in various ways. It ‘s likely that your lender has minimum requirements for down payments, meet the requirements at the very least.


Other things you can do to increase your odds of getting approved include:

  • Figuring out all the reasons you were denied for a loan from a lender in the past
  • Review your application for personal information errors before your loan application submission
  • Limit the number of loan applications you submit to prevent your credit score from dropping
  • If you have no credit history or extremely poor credit, consider applying for a secured credit card designed to build credit
  • Apply for a loan with a different lender
  • Check if your loan purpose and funds usage are allowed by your lender

Getting Approved For The Loan You Need

Whether you’ve been rejected before or are looking to apply for your first personal loan, Loans Canada can help you approved for the loan you need. Fill out an application today!

Rating of 5/5 based on 4 votes.

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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