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What Do I Do If I Was Turned Down For A Consolidation Loan?

By Troy Tisserand

Consolidation loans can be a great solution for individuals who are looking to simplify their financial obligations by combining multiple debts into a single loan. However, when you are declined for a consolidation loan it means going forward you will have less and less options to deal with your current debt. This is usually an early warning sign of more financial trouble ahead. In many cases, consumers continue to pay their minimum payments for another 3 to 4 years, almost repaying their entire credit amount owed in minimum payments, and yet the balances haven’t changed due to compounding interest. In this article, we will explore the reasons why someone might be declined for a consolidation loan and what to do if you were turned down for a consolidation loan.

Basics of Consolidation Loans

Before we delve into the reasons for loan denials, it is essential to understand the basics of consolidation loans. A consolidation loan is a type of loan that allows borrowers to merge multiple debts, such as credit card balances, personal loans, or medical bills, into one manageable loan. 

A lot of people don’t actually understand the value behind a consolidation loan. For example,

getting a CIBC loan at 9% to pay off $30K in credit cards at 29% means the principal balance has not changed, but you are saving 20% on the interest. So your loan is paid down faster

Full resource & outline of every option after being denied a consolidation loan

Obtaining a 29% high-interest loan to pay off your $30K in credit card bills at 29%, you are actually worse off because you will now run up your credit cards again. In the end, you will have a $30K consolidation loan + $30K in credit card debt in just a few short years

For this reason banks are less likely to give consolidation loans unless additional security is provided (secured against a home) or a cosigner is required

Consolidation loans only work when the following are already in place

  • The borrower has a solid budget therefore, they don’t need to continue to use their credit cards after the loan is given
  • They are disciplined not to keep spending or using their credit cards
  • Some of the money now saved in credit card payments (the difference between their monthly credit card payments and the lower consolidation loan = money left over) is used for either paying down the loan faster, creating a rainy day fund, or strengthening their financial position

You should never apply for a consolidation loan out of desperation but from a point of strength, knowing you have a solid plan for financial stability.

Reasons Why You Might Be Declined for a Consolidation Loan

The top three reasons a person is turned down for a consolidation loan is

  • You have too much debt relative to your income
  • Your credit score is deteriorating (due to missed payments or too much debt)
  • You have no security for the loan (this is generally because the amount of the loan relative to their income (see the #1 reason or no asset base for collateral) means there is too much risk relative to the interest earned for the bank

Other reasons could include 

  • Low or falling credit scores 
  • Low income relative to the amount of loan or accumulated debt
  • Poor credit due to weak credit history in Canada
  • Inconsistent income or unstable income source
  • High-risk lenders on your credit report – banks shy away from dealing with ‘desperate’ consumers; if you have a history of using payday loan companies or other high-interest-rate lenders you may be automatically turned down for a consolidation loan

What to Do If You Were Turned Down for a Consolidation Loan

If you are turned down for credit for any reason, stop applying for credit and obtain your credit reports. In some cases, credit reporting errors can prematurely cause credit declines. Here are some things you can do:

  1. You should only be obtaining your credit reports from both Equifax and Transunion. Once you have your credit report, review them carefully to look for errors. If you don’t know how to read your credit reports, consider using a credit report assessment service like the one offered by Canfi for $199.
  2.  It could be that you may have credit errors that are causing the decline in your application
  3. If you have debts that are in the collection stage that may cause you to be declined, you will need to get these outstanding issues fixed first. You could pay down some of your debt so your income-to-debt ratio is not as high, then you might consider applying
  4. We don’t recommend it, but you could find a co-signer to strengthen your loan applicatio. However, make sure it is someone with a strong credit score and asset base that could be used as collateral
    1. Remember, if for any reason you cannot pay your consolidation loan, your co-signer will have to pay your loan.  In addition, if you have late payments or missed payments, this could affect your co-signer’s credit score as well.
    2. You may need to evaluate other options to deal with your debt because unless something changes, you may need to consider more aggressive debt restructuring options that can act like a consolidation loan to fix your indebtedness

Don’t know what to do after you’ve been denied a consolidation loan? Download our free guide!

Recovery and Prevention: Building a Resilient Financial Future

Being turned down for a consolidation loan can be disheartening, but it does not mean that you are without options. Remember that carrying high debt balances creates a huge amount of financial stress that can lead to anxiety, sleep disorders, depression, and other toxic lifestyle choices like substance abuse.

It is estimated that 25% of mental health-related issues are debt related and when consumers have unmanageable amounts of debt, it can be incredibly hard to make sound financial decisions. You do have a number of options to deal with your debt that should be considered ahead of using a company like 4 Pillars. To find out more, download our resource guide to understand your options better if you have been turned down for a consolidation loan


If you have been turned down for a consolidation loan, it is crucial to remain proactive and resourceful. By understanding the reasons for loan denials, taking steps to address any issues, and seeking professional advice, you can work towards improving your financial situation and achieving your long-term goals. Remember, setbacks are temporary, and with the right mindset and actions, you can build a resilient financial future.

[Free Guide] What to do when turned down from a consolidation loan:

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