Declined by a Lender? What Happens Next
A decline from a bank is a policy outcome, not a verdict on you. Banks assess against a fixed template, and a great many perfectly sound borrowers fail it for reasons that have nothing to do with whether the loan would have been repaid. Knowing which kind of decline you got determines what you should do next, and the wrong next move can make the position materially worse.
Read this first. Do not submit another application straight away. Every credit application leaves an enquiry on your file, and a run of enquiries in a short period is itself a negative signal to the next lender. It is the most common mistake people make in the week after a decline, and it is entirely avoidable. Find out why you were declined before you apply anywhere else.
Work out which decline you actually got
There are four kinds, and they need completely different responses.
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A policy decline. Your file is fine, it simply falls outside that lender's rules. A postcode on a restricted list, a property type they do not take, an entity structure their system cannot process, an ABN registered eighteen months ago rather than twenty-four. This is the most common decline and the easiest to solve. A different lender says yes with the same file.
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A serviceability decline. The income you can evidence does not clear their calculation, often because you are self-employed and your assessed taxable income bears little relationship to what you earn. See self-employed borrowers.
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A credit decline. Something on your credit file: a default, a judgement, arrears, or a pattern of missed payments. This is the one that needs the most care, and the section below explains what is actually on there.
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A security decline. The property itself. Unusual construction, a small unit, a restricted zone, remote location or a lease structure the lender will not touch. Nothing to do with you at all.
Ask which one it was. You are entitled to ask the lender for the reason, and the answer changes everything about what you do next. A policy decline means shop the file. A credit decline means fix the file first, or structure around it deliberately.
What is on your credit file, and for how long
Most people have never looked at their own credit report and are guessing at what it says. You can request a copy from each of the credit reporting bodies operating in Australia, and you should do that before you apply anywhere else.
A few facts worth knowing, because they change the strategy:
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Repayment history stays for 2 years. That is a short window, and it is why twelve months of clean conduct genuinely moves a file. It is the single most useful thing on this page.
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A financial hardship arrangement stays for 1 year. Shorter again. Entering a hardship arrangement with your lender is not the permanent black mark people assume it is.
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A payment counts as missed once it is more than 14 days late. Not the day after it was due.
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A default requires the payment to be at least 60 days overdue and at least $150. Below either threshold, it should not be listed as a default at all.
Check whether your default was listed correctly
The process a credit provider must follow before listing a default is prescribed, and it is not optional:
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A first notice, sent to your last known address, about the overdue payment.
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A second notice, sent at least 30 days later, warning of the intention to disclose the debt to a credit reporting body.
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A wait of at least 14 days after that second notice before the default can be listed.
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And the provider cannot wait more than 3 months after the second notice to list it.
If those steps were not followed, the listing can be challenged. Notices sent to an old address you had already updated, or a default listed months after the window closed, are worth raising. Start with the credit provider, then the credit reporting body, and if that fails there are free external dispute resolution avenues. That path costs you nothing, and a removed listing is worth more than any rate we could negotiate for you.
Will a bank refinance with bad credit?
Directly: the major banks generally will not. Their credit policies treat a recent default or a pattern of arrears as a hard stop rather than something to be weighed. Applying to another bank after a bank decline usually produces the same answer and an extra enquiry on your file.
What does exist:
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Non-bank and specialist lenders. They price credit impairment rather than refusing it. Rates sit above bank pricing and the gap widens with the severity and recency of the listing. This is where most credit-impaired term refinances actually get done.
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Private lenders. Short-term, property-secured, assessed on the asset and the exit. Faster and more expensive, and the right tool when the problem is timing or when you need to clear the thing that is blocking a mainstream refinance.
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Your existing lender's hardship team. Frequently overlooked and frequently the best answer. If the difficulty is temporary, a hardship arrangement stays on file for only a year and does not require you to borrow anything at all.
The realistic sequence for most people is not one loan. It is a short-term facility that removes the blockage, twelve months of clean conduct, then a refinance to a non-bank at a normal rate, and back to a bank later if you want to.
The bridge-to-repair strategy
This is the structure that suits a credit decline, and it works precisely because repayment history only stays on file for two years.
A borrower was declined for a refinance because of a default listed eighteen months ago and arrears connected to a business debt.
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Home value: $880,000
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Existing first mortgage: $410,000, an LVR of 46.6%
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Amount needed to clear the business debt and bring everything current: $120,000
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Second mortgage behind the existing lender, taking combined borrowing to $530,000, an LVR of 60.2%
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Term: 12 months, interest capitalised.
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Interest at 12% p.a. on $120,000: $14,400. Establishment fee at 2%: $2,400. Legal, valuation and the priority deed: approximately $4,000.
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Total cost of funds: $20,800, or about $1,730 a month. Balance at exit: $134,400, taking combined borrowing to 61.9% of value.
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Exit: a non-bank refinance at month 12, by which point the default is thirty months old and the file shows twelve consecutive months of clean repayment history.
Second mortgage pricing sits above first mortgage pricing because the lender ranks behind, and credit impairment widens that further. Your rate depends on the security, the combined position and how well the exit is evidenced.
The point of the structure is the calendar, not the money. You are buying twelve months during which the adverse listing ages and your repayment history rebuilds. The mechanics of ranking behind an existing lender, including the first mortgagee consent that is usually the slowest part, are on second mortgage loans.
Been declined and working to a deadline? Tell us the property, what is owing on it, what the lender said, and how you expect to repay. We will tell you which kind of decline it was and whether it is solvable, usually the same day. If the honest answer is that borrowing is not your best move, we will say that instead. Request an assessment.
When borrowing is not the answer
We would rather lose the enquiry than put someone in a worse position, so this needs saying plainly.
If you are behind on the mortgage over your own home and the shortfall is ongoing rather than temporary, borrowing more against that home is dangerous. A short-term facility postpones the problem and adds cost to it. If the income does not recover inside the term, you are then facing the same difficulty with a larger debt and less equity.
Signs that borrowing is the wrong tool:
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The shortfall repeats every month rather than being a one-off gap
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There is no specific event, a sale, a refinance, a contract or a receipt, that repays the facility
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You are considering it mainly because it is the only option that has not said no yet
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The equity is already thin, so a valuation landing low would leave nothing
Free help exists and it is genuinely good. The National Debt Helpline on 1800 007 007 provides free, independent financial counselling. It is not a lender and it is not selling anything. If your situation is one of the four above, call them before you call us.
Two other things worth doing first, both free: ask your current lender's hardship team what they can offer, and request your credit report to see what is actually on it.
Where a short-term facility genuinely helps
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Clearing the specific thing blocking a refinance. A tax debt, a business debt, arrears. Once removed, mainstream lending reopens. See business owners.
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Meeting a settlement deadline after a bank approval collapsed late. See settlement timing gaps.
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Buying before selling where servicing was the obstacle but the sale will clear everything. See buying before you sell.
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Holding a property through a sale campaign rather than accepting a distressed price. Selling well takes time, and time is what the facility buys.
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Investment or business borrowing declined on exposure limits rather than credit. See property investors and developers.
Every one of those has a defined event that repays the facility. That is the test.
What a credit issue changes about the terms
It does not usually change whether you can borrow. It changes the price and the leverage.
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The lender panel narrows. Fewer funders, so less competitive tension on pricing.
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The LVR ceiling comes down. Expect a more conservative position than the 65% to 75% available on a clean file.
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The rate rises, and how much depends on how recent and how serious the listing is. A default from three years ago is a very different conversation to arrears from last month.
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The exit is scrutinised harder. On a clean file a lender might accept an intention to refinance. On an impaired file they want it evidenced.
Disclose everything at the first conversation. It will be found in the credit check regardless, and a late discovery costs you days you probably do not have. It has never once cost someone an approval that honesty at the outset would have secured.
What we can and cannot do
We arrange short-term property-secured finance, generally 3 to 24 months, including second mortgages behind an existing lender. That means we can usually help where there is real equity and a specific event that repays the facility.
We do not arrange 30 year bad credit home loans. If what you need is a long-term term mortgage from a specialist lender, that is a different product and a different panel, and we will tell you so rather than sell you a facility that does not fit. We also will not fund someone out of a structural income problem by lending against their home, for the reasons above.
How fast, and what you will need
Three to seven business days where the property is lightly geared and the paperwork is ready. Where the facility ranks behind your existing mortgage, that lender's consent is almost always the slowest step and should be requested on day one.
To get an indicative answer:
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The property address and what you believe it is worth
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Your current lender, the balance, and whether the loan is up to date
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What the declining lender told you, if they gave a reason
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Any adverse credit you are aware of, including approximate dates and amounts
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The amount you need and specifically what it clears
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The event that repays the facility, and roughly when
Frequently asked questions
Can I get a loan after being declined by a bank?
Often, yes. Most bank declines are policy declines rather than judgements about the asset, and a different lender assessing the same file will frequently approve it. Where the decline was credit-related, short-term property-secured lending assesses the security and the repayment event rather than the credit score, so it remains available in many cases. What matters is whether you have real equity and a specific event that repays the loan.
Will banks refinance with bad credit?
The major banks generally will not. Their policies treat recent defaults and arrears as a hard stop. Non-bank and specialist lenders will, at a higher rate that reflects how recent and how serious the listing is. Private lenders will on a short-term secured basis. Applying to a second bank after a bank decline usually produces the same result plus another enquiry on your file.
How long does a default stay on my credit report?
Several years, and long enough that it should not be your reason for waiting. What is more useful to know is that repayment history stays for only 2 years and a financial hardship arrangement for only 1 year. That means twelve months of clean conduct genuinely changes how your file reads, which is the whole logic behind a short facility that buys you that time. Request your credit report to see exactly what is listed and when.
Can a default be removed?
If it was listed incorrectly, yes. A default requires the payment to be at least 60 days overdue and at least $150, and the provider must send two notices, the second at least 30 days after the first, then wait at least 14 days before listing, and cannot list more than 3 months after that second notice. If any of that was not followed, raise it with the credit provider, then the credit reporting body. Correctly listed defaults cannot simply be removed, and anyone charging you to make one disappear is not being straight with you.
Why was my home loan declined?
Usually one of four reasons: policy, where your file is fine but falls outside that lender's rules; serviceability, where evidenced income does not clear their calculation; credit, where something on your file triggers a stop; or security, where the property itself is the problem. Ask the lender which it was. A policy or security decline means take the file elsewhere. A credit decline needs a different approach.
Does applying again hurt my chances?
Yes. Every application leaves an enquiry on your credit file, and several enquiries in a short period reads as distress to the next lender. After a decline, find out the reason and check your credit report before applying anywhere else. This is the most common and most avoidable mistake people make.
Can I get a second mortgage with bad credit?
Frequently, where there is sufficient equity. The lender ranks behind your existing mortgage, so it prices above a first mortgage, and credit impairment widens that further. Your current lender must generally consent, which is usually the slowest part of the process. It suits situations where the first mortgage is well priced and you would rather not disturb it.
Do I need income verification?
It depends entirely on the purpose. Business and investment purpose facilities are assessed on the security and the exit, and income is often not assessed at all. Loans for personal, domestic or household purposes are regulated, responsible lending obligations apply, and income must be verified. See who qualifies for a bridging loan.
What LVR is available with credit impairment?
More conservative than the 65% to 75% available on a clean file, and how much more depends on how recent and how serious the listing is, plus the quality of the security. Strong equity is what makes an impaired file workable, so the more of it you have, the more options exist.
I am behind on my mortgage. Should I borrow to catch up?
Only if the shortfall is genuinely temporary and something specific will repay the facility. If the gap recurs every month, borrowing against your home postpones the problem and adds cost to it. Speak to your lender's hardship team first, and call the National Debt Helpline on 1800 007 007 for free independent financial counselling before you take on more debt.
Will a hardship arrangement wreck my credit file?
Less than most people fear. A financial hardship arrangement stays on your credit report for one year, which is shorter than almost anything else recorded there. If the alternative is missed payments accumulating into a default, the arrangement is generally the better outcome. Ask your lender what they can offer before assuming it is not worth it.
Talk it through before you apply anywhere else
The most valuable ten minutes after a decline is not another application. It is working out which kind of decline you got, what is actually on your file, and whether the problem is timing, policy, credit or the property. Those four need four different responses, and getting it wrong costs you both time and another enquiry.
Tell us the property, the current debt, what the lender said and how you expect to repay. We will give you a straight answer, including when the answer is that you should not be borrowing at all.
Request an assessment, or read further: bridging loans explained, how bridging loans work, interest rates, costs and fees, loan types and our FAQs.
Declined for a commercial or development purpose rather than a personal one? See commercial bridging loans. We work with borrowers nationally, including Sydney, Melbourne, Brisbane, Perth and Adelaide. All locations.