What to do if your loan application is declined

Why can’t I get a loan?

There are many reasons why providers decline loan applications. Here are some of the most common ones:

Lack of credit history

If you’ve never borrowed money, you probably don’t have much of a credit history. Without one, lenders can’t tell how reliable you are as a borrower and may be reluctant to lend to you.

A poor credit score

A poor credit score suggests you have had problems repaying debt in the past. This could prevent lenders from offering you a loan. 

Too many credit applications 

Making several credit applications in a short space of time can make you look desperate for cash and suggest that you’re struggling to manage your finances. This can be a red flag to lenders.

Financial links to someone with bad credit

If you’ve taken out a joint mortgage or current account, a financial link exists between you on your credit report. If the other person has poor credit, this can affect your own chances of being accepted for a loan. 

Mistakes on your credit application

A provider can decline your loan application if you make mistakes when filling out the form, such as entering the wrong address. 

Your income is insufficient

Lenders often specify a minimum income level to qualify for a loan to ensure that borrowers can repay it. If you don’t meet this requirement, you won’t be eligible for a loan. 

What should I do if I can’t get a loan?

If a lender turns down your loan application, you can take several steps to increase your chances of being accepted in the future.

1. Speak to your lender

The first step is to find out why the lender declined your application. You might have already found this out when it refused your application. But if not, contact the lender to ask. The lender might say that your credit score wasn’t high enough or that your income didn’t meet its criteria, for example. 

2. Check your credit report for mistakes

You can check your credit report for free with any of the three main credit reference agencies (Experian, Equifax and TransUnion). 

Check whether there are any errors, such as a mistake in your personal details or an incorrect payment. If you find errors, contact the credit reference agency to get them corrected. The agency has 28 days to investigate and remove the information or explain why it doesn’t agree. Find out more in our How to dispute your credit report guide. 

If your dispute is unresolved, you can add a Notice of Correction to explain the issue. For example, if you missed a payment due to being made redundant, this gives you the chance to explain that.

A Notice of Correction should be no longer than 200 words. To add it to your reports, you’ll need to contact all three credit reference agencies.

Any lender checking your credit report will see your explanation and should take it into account when considering your credit application. 

3. Remove old financial associations 

Ensure you’re not still financially linked to someone you no longer have an account or relationship with. Old associations could affect your chances of getting credit. Contact the credit reference agencies and request a ‘notice of disassociation’ to remove the link from your credit file.

4. Improve your credit score

If your credit score is below par, take some steps to improve it before applying for another loan. For example:

• Check you’re on the electoral roll

• Pay down existing debts 

• Pay your household bills and debt repayments on time.

How long should you wait before applying for another loan?

It’s best to wait at least three months, preferably six, before applying for another loan. A hard credit check happens each time you make a credit application. Too many hard credit checks in a short space of time can make it look like you’re having financial difficulties, which deters lenders from letting you borrow.

When you apply, use an eligibility checker first. This will carry out a soft check and let you know whether you will likely be accepted for a particular loan. This won’t hurt your credit score, and if you get the green light, you can then go ahead and apply in full with confidence. 

Other ways to borrow

There are several other borrowing options to consider if you’re struggling to get a regular personal loan. These include:

Credit-building credit card: Credit-building credit cards are designed for those with poor credit. They tend to offer lower credit limits and charge higher interest rates. But, used sensibly, they can help you build your credit score over time. 

Credit union loan: Credit unions are not-for-profit organisations that let people in a community or organisation save and borrow money. Many credit unions will accept customers with lower credit scores and often offer competitively priced loans. 

Guarantor loan: To apply for a guarantor loan, you’ll need to find a family member or close friend who will act as a guarantor and step in if you can’t repay your loan. Because this reduces the lender's risk, guarantor loans can be easier to get.

Overdraft: If you only need to borrow a small amount for a short period, you could ask your bank for an authorised overdraft on your current account. Just be aware that interest rates can be high.

Bad credit loan: Bad credit loans are designed for people with poor credit. However, their interest rates are typically higher than those of standard loans, making them more expensive. 

Secured loans: Getting accepted for a secured loan can be easier than an unsecured loan because you use an asset (such as your home) as security. However, be aware that your home could be at risk if you fail to repay your loan.

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