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5 Common Reasons For A Debt Consolidation Loan Rejection


A debt consolidation loan allows a person to combine all their debt payments into one manageable monthly payment and lower their interest rates. The main reason for getting a debt consolidation loan is to make it easier to manage your debt and allow you to pay back the money you owe within a reasonable time frame. Consequently, many people in financial difficulty turn to these types of loans as a way to solve their debt problems.

Unfortunately, getting a debt consolidation loan isn’t a simple process. There are several reasons why someone might not qualify for one. This article will break down the five most common reasons why a financial institution might reject someone for a debt consolidation loan.

5 Reasons Your Debt Consolidation Loan Application May Be Rejected

1. Lack of Security.

When applying for a debt consolidation loan, financial institutions will often ask for security or collateral, especially if you’re having trouble managing all your payments. Security or collateral helps reassure the financial institution that they will get their money back. Therefore, if you don’t have anything to offer as collateral, your application will likely be rejected.

2. Poor Credit Report and Score.

Your credit report and score are indicators of risk. They tell a lender whether you can be counted on to pay bills on time, how much credit you’re using, and how likely it is that you’ll repay your loan. While your credit score is not the only factor lenders consider, if you have a low credit score and an adverse payment history, this may prevent you from receiving a consolidation loan. This is why it’s essential to always make your payments on time.

3. Inadequate Income.

In general, a consolidation loan costs more every month than the cost of paying the minimum payment on a credit card. Therefore, if you don’t have enough income to pay back your loan on time, then you’re unlikely to get approved for a debt consolidation loan.

The minimum payment on a credit card is usually so low that it can take several decades to pay off your credit card balance, and that’s only if you’ve stopped using the card. Consolidation loans, by contrast, need to be paid off within a specific period of time. This is usually 3 to 5 years. As a result, your payments need to be high enough to pay the loan off in that amount of time. Hence, if you don’t make enough money to manage your daily expenses and the loan payments, your application will likely be rejected.

4. Insufficient Canadian Credit History.

If you’re new to Canada, you likely won’t have enough credit history to qualify for a consolidation loan. A strong credit report score takes time to develop, and financial institutions look at your credit history to determine your experience with credit. It is unlikely that they will feel confident issuing you a loan if they don’t have evidence that you can handle credit.

5. Excessive Debt.

In general, financial institutions will only let you borrow up to 40% of your gross annual income for a debt consolidation loan. Therefore, if you ask for a loan, the institution will add your proposed loan to your existing debt payments. This includes all the payments on your current loans, credit cards, lines of credit, and mortgage. If the new loan puts you over 40%, then you will be rejected.

What To Do if You’ve Been Rejected

  • Use a cosigner. A cosigner reassures financial institutions that there is someone dependable who can pay your loan if you can’t and can help you get approved.
  • Use your home equity. Using the equity you’ve built up in your home, you can secure a line of credit or home equity loan to pay off your consumer debts.
  • Speak with a credit counselor about your options. A counselor can help you create a budget to manage your debt and explore other options for making your debt payments manageable.


It’s essential to keep in mind that a debt consolidation loan isn’t for everyone. It also won’t make your financial problems disappear. Therefore, you must look for the root of the problem and take steps to overcome these issues. You should consider your spending habits and make appropriate changes to help pay down your debts.