If your loan application has been rejected, you might wonder why it might have happened. Read our short and simple guide to help you bounce back.
Rejection can be particularly difficult to deal with if your application was for something specific, such as a big project or a larger purchase, causing you to change your plans late in the day.
There are a number of reasons why a loan application may be refused by a lender. Our guide will help to explain what these are and what you can to do help avoid such a situation. If you’ve had a recent application rejected, find out what to do next and how to avoid future rejections.
Why do loans get declined?
You may wonder why a bank would reject a loan application, but the truth is that there are many different reasons this might happen and in some cases, you might not even initially be told what caused your application to be rejected. What you can try to do is identify the exact reason your loan has been turned down, and make positive changes to boost your chances of success the next time you make an application.
Poor credit history
A poor credit score is the most common reason for a rejected loan application. If a borrower has a history of managing loans badly, has consistently failed to make repayments or accrued outstanding debts of any sort, their credit score may be negatively affected, which makes it harder to get a loan. Similarly, if an individual is already servicing lots of different loans and credit cards, a new lender will see them as a risky prospect and may decide to decline their application.
If you have bad credit, it doesn’t necessarily mean you won’t be able to borrow, although it can mean higher interest rates being set on your loan. Norton Finance can help find the right loan for you, even if you have a bad credit history.
Low or irregular income
In some cases, the reason for an application being turned down is simple – the applicant’s own circumstances just don’t make it a viable option. It may be the case that the lender is concerned your monthly income isn’t enough to service the repayments on the agreement, or has worries that your employment situation might not be stable enough to support your servicing of a long-term financial commitment. A lender needs to be convinced that you can comfortably pay back everything you’ve borrowed over the repayment term, or they’re likely to reject your application.
In other cases, a lender may consider the ways in which you want to use the borrowed money unsatisfactory, or they may review other loans you’re currently repaying and conclude that this new loan would be one too many for your bank balance.
Some people have loans refused for just one of these reasons, while others find that a combination of negative factors can stop them from securing the loans they want. Lenders don’t always tell you the reasons for refusal, so to avoid further rejections, it’s worth taking the time to look carefully at your finances and find out for yourself. Whatever the reason for rejection, it’s important to remember that in most circumstances, you can alter how a lender sees you and, ultimately, secure the cash you need.
Can you get denied after pre-approval?
Unfortunately, you may find your loan application has been declined following pre-approval. This is a doubly frustrating scenario. Loan applicants often feel confident that they’re going to get the cash they want, then their hopes are dashed when the hard credit checks are carried out.
Many lenders provide a ‘chances of success’ score at pre-approval stage. So, you may have pre-approval with chances of success at 70%, for example. To avoid those black marks on your credit score, don’t go ahead with an application when pre-approval still indicates a low chance of success.
It’s absolutely essential that you are as honest as you can with every loan application. If a lender pre-approves your loan based on the information provided, and finds information on your financial history during a hard check that you withheld or lied about, your loan will be refused and the details may be recorded permanently on your credit history.
What to do if your loan application is rejected
If your application for a loan is rejected, there are a number of things you can do, as well as a few you should avoid doing. Avoid making multiple loan applications when turned down, as this can have a negative impact on your credit score, which will make it even more difficult to get a loan in future. Instead, work to strengthen your position. Ask the lender why you were rejected and take a look at your finances to identify potential problems.
Take some time to build your credit rating too. You can do this by making sure you’ve no outstanding debt, getting your name on the electoral register, and managing bills and existing credit responsibly.
Find out more about building up your credit score with our guide to good financial habits , and see how just a few little changes can make all the difference.