4 Reasons Why Your Debt Consolidation Loan May Be Denied

4 Reasons Why Your Debt Consolidation Loan May Be Denied

Debt consolidation loans are typically seen as a great way to solve debt problems, especially when one starts experiencing difficulty in meeting their multiple financial obligations. In turn, they take out debt consolidation loans in Singapore in an effort to minimise their interest rates and combine all of their debts into a single manageable monthly payment.

While getting a debt consolidation loan is indeed a good idea in many cases, it is not as simple as many people think. In order to qualify for a loan, there are certain requirements that you need to meet, and failure to do so will most likely result in the denial of your loan application.

When getting a debt consolidation loan, certain factors like your income and credit score are crucial in determining whether your loan will get approved. Here are some of the most common reasons why you may be denied a debt consolidation loan. 

1. Inadequate income

Your annual income matters most when applying for a loan. Generally, banks and licenced money lenders want to make sure that you make enough money to handle a loan. If you are struggling to make ends meet, they are unlikely to offer you a loan.

Most money lenders expect borrowers to repay a debt consolidation loan in three to five years. This is why they ordinarily require borrowers to have some kind of regular and reliable income. So, if you are planning to take out a debt consolidation loan, it would be best to have a steady source of income first.

2. Too many debts

Aside from your income, licensed money lenders and banks will also take a look at any outstanding debts prior to approving your debt consolidation loan. Should you accumulate too many debts, this can affect your chances of approval. In such a case, your income will once again come into play in the form of your debt-to-income ratio (DTI).

As much as possible, you would need to keep your DTI below 36%. This means that only about a third of your monthly income should be used to pay off your debts. For instance, if, prior to taxes, you are making $3000 a month, and you spend $1000 of it on your debts, you are looking at a DTI of 33% (1000/3000 = .33) – this figure is acceptable when applying for a loan.

However, when your DTI goes beyond 36%, such as when you accumulate purchases on your credit card and owe more than a third of your monthly income, the chances of getting approved for a debt consolidation loan are not high. Hence, as much as possible, keep track of your DTI before applying for a loan.

3. No security 

Security is another word for collateral – anything of value that money lenders can hang on to should borrowers fall short of repayment. Some of the most common types of loan securities are a house, a car, and jewellery. When you have these types of securities to offer, you will become less of a risk in the eyes of banks and licensed money lenders.

Most of the time, financial institutions ask for security when you apply for a debt consolidation loan, especially when you are having difficulty managing all of your repayments. As such, to get your debt consolidation loan approved, you should expect to offer some form of collateral to your money lender. 

4. Bad credit score

A bad credit score is one of the top reasons why banks and licensed money lenders deny an application for a debt consolidation loan. Your credit score is the number that represents how risky you are as a borrower to the money lender. It indicates how well you have handled your debts in the past, such as whether you have paid them on time or whether you have the likelihood to repay your loans.

When you have a poor credit score, you become more of a financial risk in the eyes of the money lender. The poorer your credit score is, the lower your chances for loan approval. Nonetheless, getting approved for a debt consolidation loan, even with a bad credit score, is not impossible.

While there are no quick fixes for a bad credit score, there are some things that you can do to raise your credit score more easily. This includes making your credit card payments on time, opening a secured credit card, and having more than one source of credit. Remember, while a solid credit score is not the only factor that determines your eligibility for a debt consolidation loan, having a low one will surely impact your qualification. 


To  ensure your application for a debt consolidation loan will be approved, it is important to work on improving your income, security, debt management, and credit score. By working on these critical factors, as well as avoiding mistakes like neglecting credit counselling, you will have a better chance of getting approved for a debt consolidation loan.