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What to do if you’ve had a loan application rejected

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.

There are several 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 to help avoid such a situation happening again.

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 lender would reject a loan application. 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 your financial habits, 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 potential 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. This in turn 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.

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 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 too much for you, if you have missed any repayments on these other loans.

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 be accepted, then find 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 essential that you are as honest as possible 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

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 some circumstances, you can improve how a lender sees you and, ultimately, secure the cash you need.

Don’t just reapply

If your credit score isn’t too bad, you may be tempted to reapply for a credit card or loan with a different provider. This isn’t always the best idea at this point, as repeatedly applying for credit could have a negative effect on your credit score.

Take an honest look at your situation

If you want a loan to buy a bigger car, that’s one thing - and hanging on a little while longer and building up some savings so that you need to borrow less shouldn’t be too stressful. But if you were trying to get a loan or credit card to meet the mortgage payments or to cover living expenses, that’s a more serious situation.

Get advice

If you’re looking for some advice, it may be worth contacting one of the free debt advice services - the Money Advice Service is a great starting point online. There may be options you can take such as taking a mortgage payment deferral at a time of reduced cash-flow, rather than taking out credit.

Alternative lenders

If you’re seeking credit because of difficulty making regular repayments, you should think very carefully before taking out a payday loan or similar arrangement. These have enormous rates of interest and you can end up getting much deeper into debt.

Improving your credit score – and your situation

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.


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