Ever had that heart sinking feeling when you get declined for a loan? It’s frustrating isn’t it. And the first thing you want to know is why.
There are many reasons why your loan application keeps getting declined. Lenders don’t have to tell you their reason but don’t worry, we will. We’ve got some of the most common reasons why loans get declined here. Plus, we’ll look at what you can do about it.
Reasons Why Your Loan Applications Are Declined
1. You’ve Got a Low Credit Score
Your credit score tells the lender how well you manage your money and how good you are at paying back your debts. Its why lenders do a hard credit check when you apply for a loan. If you’ve got a bad credit history, there’s a risk the lender won’t get their loan paid back.
The searches lenders do on your credit file will show up on it. If you make a lot of applications in a short space of time, this can lower your credit score.
What you can do about it:
Check your credit score before you apply for a loan. If it’s low, then do what you can to bring it up before applying. You can improve your credit score by reducing your existing debts and making your repayments on time.
2. It Looks Like You’re Struggling
These days lenders like to know you can afford your loan repayments. That’s why they’ll look at more than just your credit score. They’ll look at how well you manage your money and if you’re struggling to make ends meet. If you’ve got money problems, your loan application is more likely to be declined.
What you can do about it
Apply when you’re managing your money well, and you haven’t spent over your limits. It helps if you haven’t missed repayments on any other debts you’ve got. If you’ve maxed out your credit cards, try reducing them to below their credit limit before you apply for a loan.
3. Your Repayments Are Too High
Lenders will look at how much you’re paying towards your debts compared to how much you earn. Imagine you’ve got £1,200 a month coming in, but you pay £800 in debt repayments. This shows that you’re paying too much in repayments and don’t have enough left to live on. In this case, there’s a good chance you’ll be declined.
What you can do about it
Make sure your loan repayments aren’t too high based on your income. As a rule of thumb, try to keep your debt repayments below 40% of your income. Any more than this and loan companies are unlikely to take the risk of lending to you. They don’t want to see you not having enough money to live on.
4. Your Information is Wrong
Did you enter your correct name and address when you submitted your application form? Your name and address must match what’s on your credit file. If they don’t, it could be the reason why your loan’s been declined.
Lenders need to know that you are who you say you are.
What you can do about it
Don’t just check your name and address on your credit file, look at other details on there too. Check you’re registered on the electoral role. Check your banks and loan companies are reporting your repayments correctly. If anything at all is wrong, get it put right.
5. You’re Linked to Someone with a Poor Credit Score
Do you have a partner who you’ve applied for loans within the past? If you have and their credit score isn’t very good, it can affect the lender’s decision to give you a loan. Even when you’re applying in your own name, it has an impact. You’ll be seen as having a financial link with someone who has a poor credit score.
What you can do about it
Remove accounts from your credit file with people you’re no longer connected to. If you can show that you’re not together anymore this can help improve your credit score.
Does It Matter What Type of Loan You Apply For?
Be it a payday loan, a short term loan, a credit card for bad credit, or a credit line, it doesn’t matter. Whatever type of loan you apply for, lenders can still decline you for the reasons listed above. The only difference with a line of credit is that once you pay off what you borrow, the account doesn’t close.
You can borrow the money again without having to reapply from scratch. If you keep within your credit limit and make your repayments on time, you can draw out as much money as you like, when you need it.
In Summary
Getting declined for a loan isn’t nice we know. But by understanding what the reason could be, you can take action to avoid it. Do what you can to help improve your chances of being accepted before you apply. Then choose a loan that suits you, and that you can afford to pay back.
Disclaimer: We are not providing financial advice, these are just tips for informational purposes.
