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Last updated on 1st of April 2022

Why Can’t I get a Loan?

There can be many reasons for why you may not be approved for a loan. It’s important to understand why you weren’t eligible, before you make any further credit applications and hurt your credit score.
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There can be many reasons for why you may not be approved for a loan. It’s important to understand why you weren’t eligible, before you make any further credit applications and hurt your credit score.

Understanding the reason behind your loan being declined may help you take steps to improve your credit score and qualify for credit at better rates in the future. 

Once you do, you can take the necessary steps to improve your financial situation and get approved for a loan with better interest rates and terms. 

Let’s take a closer look at what to do when you can’t get a loan.

What to do if your loan application is denied

Don’t reapply

If your loan application ist declined, don’t re-apply straight away. It’s important to know the reason for the decision before you apply again. If you keep applying, you may hurt your credit profile and this could prevent you from borrowing money when you really need to.

Every credit application you make - whether it was successful or not - reflects on your credit profile. If you make too many applications in a short period, lenders may think you are desperate for cash.

This can be a big red flag and may lead to them declining your application. 

Why was my loan application declined?

You can ask the lender why your application was not approved as it can help you improve your chances when applying elsewhere.

You can request a reason by phoning the lender, sending an email or writing a letter. You may not get specific details, but you’ll get an answer that can point you in the right direction. 

As an example, if the lender says you’ve failed a credit check, you can look at your credit record and see why you may have been declined. 

Check your credit record

If you were declined for a loan based on something in your financial history, review your credit profile.

Your credit report should show you the reason why you have been rejected if you failed a credit check. Look for negative or incorrect information, the wrong contact details, or loan applications that you didn’t make.

Also, review your payment history on existing accounts to ensure no missed payments were noted.

If your credit history looks good, there may be other factors that contributed to your application being declined such as missed debt payments, or irregular income. It could be possible that you may not have a credit history that is substantial enough.

This is often the case with people that don’t have debt yet or first-time borrowers.

When it comes to your contact details, make sure you are registered on the electoral roll as this is where your credit history draws its information from. Make sure your name and contact details are accurate.

Consider using eligibility checkers

Normally you’ll need to wait a few months before applying again. But before you do, make sure that you meet the lender’s application criteria.

There are free eligibility checkers available that can help you see if you are likely to be accepted for products like loans or credit cards. They only do a soft credit check so it won’t hurt your profile.

Pay off existing debts

If you can, pay off existing debts to help you get approved for a loan in the future.

You should especially focus on debts with high interest rates, such as credit cards. This can help improve your credit score and reduce your financial pressure. 

What to consider before applying for a loan

Before you apply for a loan you should check your credit record first for anything that may hurt your chances of getting approved. It’s also an opportunity to make sure that all the details on your credit profile are correct and up to date. 

Some things on your credit profile that may hurt your chances of a loan approval include:

  • Credit applications that you haven’t made

  • Missed payments on loan or credit card accounts

  • Wrong address or contact details on your name

Consider whether you can apply for one single loan to get everything you need. This will help to avoid multiple loan applications that could further hurt your score.

If your credit profile needs some work you can do this before making any applications. You can build up your credit in several ways and also avoid getting into too much debt at the same time.

Rebuilding your credit

Improving your credit score can help you get approved for a loan so it’s important to regularly ensure your credit profile is up to date and in good shape.

Here are a few ways you can build up your credit score:

  • Register on the electoral roll

  • Keep all debt repayments on time

  • Make sure your contact details are updated

  • Use Creditspring’s Stability Hub

Adding evidence to your credit profile of rent payments can also help build your credit history without having to enter into another credit agreement. 

Landlords haven’t always reported payments to credit agencies like Experian but now they are able to. This will show that you are keeping up with rent payments and boost your profile.

Organisations like Credit Ladder also allows tenants to upload and maintain their own information.

Another benefit is using open banking. This is where the largest UK-regulated banks allow you to share your account and payment information with other lenders and organisations.

Open banking helps you to share data with lenders so they can make a more informed decision about what you can afford. It can also lead to you getting a more favourable lending rate. Keep in mind that your bank may only share your information with your explicit consent.  

You can get a credit-builder credit card that helps you rebuild your credit. These cards are ideal for people with a bad or limited credit history and may come with higher interest rates. 

Borrowing to repay other loans

If you are considering borrowing money to pay off an existing loan, you may have to re-think your current spending habits and look at where you can reduce unnecessary spending.

One example is looking at how you can reduce your overdraft size or make increased credit card payments to avoid paying high-interest rates. You can also look at other ways of reducing household costs like switching energy suppliers to cut down energy costs.

If you are finding yourself regularly missing essential payments like rent or mortgage, loans or credit card payments, you may want to consider contacting a free debt advice service for assistance.

They will work with you to come up with a sustainable plan to reduce your debt and help you avoid getting into further financial difficulty.

Personal loan alternatives

One alternative to a loan is a credit card. Look for a card with a low interest rate and one you can comfortably repay. There is no point in taking out a credit card with a high monthly payment that you can’t afford, as this will hurt your credit profile even more.

Most loans and credit cards with good rates are reserved for people with good credit. If you don’t have a good credit score, you may be tempted to take out a payday loan - but be cautious.

Payday loans usually come with high interest rates and fees, so it’s an expensive way of borrowing. It’s best to avoid payday loans if possible and rather look at other alternatives.

You can also consider borrowing from friends or family. You will avoid high rates and won’t have to worry about making any loan applications that will reflect on your profile - but make sure you discuss the terms upfront, including any interest payments, and draw up an agreement.

Another option is applying for a guarantor loan. If you have a guarantor - who agrees to pay your loan if you can’t - this will give the lender extra security and reduce the risk of lending to you.

If you are a homeowner you can choose to apply for a secured loan. It will likely improve your chances of getting approved and getting a better interest rate, but it comes with the risk of getting your property repossessed if you default on the loan.

Whatever option you choose, always consider your options carefully and don’t apply for a loan if you won’t be able to comfortably repay it.

FAQs

Can I apply for more than one loan?

There is no limit to the number of loan applications you can make, although they may not all be approved. Multiple applications may also hurt your credit score.

What is a secured loan?

A secured loan is a loan granted to you against a high-value asset like a house. If you default on your loan, the lender may repossess the property to recover its losses.

How can I improve my credit score?

By making loan payments on time and keeping your contact information accurate, you can improve your credit score. You should also reduce the number of loan applications you make at a time and avoid high interest loans and credit cards that may influence your repayment ability.

Why was my loan not approved?

There can be many reasons. It’s best to start by asking the lender why your application was not approved, and then check your credit profile for any signs. Also, make sure that you meet the lender’s specific application requirements to improve your chances of success.