You’ve applied for a bank loan, but your application has been rejected by the lender. Here are the most common reasons why people are declined for loans.
You submitted your application only to find that you’ve been declined for a loan. You’ve been a loyal bank customer for many years, so the rejection makes no sense to you at all. If you find yourself in this position, you’re certainly not alone. Following the financial crisis, the criteria used by financial institutions have been tightened considerably so more people will be rejected for credit.
The first piece of advice that must be followed is that you shouldn’t apply for too many financial products or installment loans within a short timeframe. Each time that you make an application, a credit search is recorded by each of the major credit reference agencies. This will be visible for 12 months in the UK. Most lenders decline personal loan applications if you’ve already applied within the last 30 days.
Why Was I Declined for a Loan?
Poor fit for the lender – Before you apply for a financial product, check to see if you’re likely to qualify. If you don’t, applying is a complete waste of time. There are lots of different lenders, so take some time to find a lender that’s more statistically likely to approve an applicant based on your credit profile.
Employment status – If you’re doing temporary work, you’ll be rejected for a loan. Most loans are a 5-year financial commitment and lenders want employment stability. Although there are no guarantees in life, you’ve got more chance of repaying the money you’ve borrowed with a permanent job.
Size of the loan – You may want to borrow £15,0000, but do you earn enough money to afford the repayments? After waiting a month, you may wish to consider applying for a smaller loan.
Past defaults – If you’ve failed to manage your credit obligations properly, it’ll be very difficult to get approval for an unsecured loan for the next 6 years. Customers who’ve defaulted in the past are far more likely to do so in the future. You may need to take steps to improve your credit rating before applying again.
Too much debt – Other than the way you’ve handled your credit obligations, the second most important factor is how much money you owe relative to the amount that you earn. If you do have a high debt-to-income ratio (DTI), this may be why you were declined for a loan. You need to pay down your debts.
Credit report errors – Although we expect the information held about us to be accurate, this isn’t always the case. In order to avoid a loan decline, order a statutory copy of your credit report from Experian, Equifax and CallCredit for £2 each. If there are mistakes, you can get them corrected.
Closing unused credit cards – It seems logical to close down unused accounts, but this can lead to a lower credit rating. You’ll appear more financially stretched. It’s better to use your old cards occasionally and pay off the balance as this will give your creditworthiness a boost.
If you have been declined for a loan, there’s no point in applying within 30 days of being informed. Use this period of time to do things that will increase your chances of getting approval. For example, check that the information held about you by credit reference agencies is 100% accurate. It’ll take time to correct any erroneous data, but it’ll dramatically increase the likelihood of approval.