There are various different reasons why a loan application can be declined, from not meeting the age, income or credit status requirements. It is important to know that every lender is different and although you were declined with one, does not mean that you will be declined by another.
Typical reasons for being declined include:
- Below required age (usually 18)
- Credit status or credit score not sufficient
- Income not high or stable enough
- You are unemployed, on benefits or a pensioner
- You have large debts or ongoing costs elsewhere
- Lender has stricter requirements during the time you applied
Being rejected for a loan can be frustrating, especially when you don’t know why you were rejected in the first place. However, learning why your loan was declined and understanding some of the common criteria process a little better, it can help to improve your chances of success in future applications.
Below is a list with some of the common reasons why your loan may have been rejected…
A Poor Credit Score
While some lenders will consider applicants with bad credit scores, often this score, and your credit history, are major contributing factors in lending decisions. Many lenders will only accept those with a certain credit score – e.g. good or excellent. This is because your credit score can reflect how you have managed certain financial situations in the past, and therefore potentially how you’re likely to manage a loan with the lender.
If a lender notices any concerning, negative items on a credit report, this can influence their decision on whether or not to approve a loan. Negative items on a credit report can include:
- Bankruptcy, defaults, CCJ
- An excessive amount of credit inquiries
- High balances on credit cards
- Foreclosure
In addition to having negative items on your credit report, lenders can also be wary of those who don’t have enough of a credit history – the lack of evidence with past borrowing and financial management making it trickier to evaluate how an applicant would manage a loan. You can check your credit report here on Lending Expert by requesting a free credit check.
Employment and Income
A common requirement for taking out a loan is for borrowers to be in employment with a stable, regular income that can manage repayments on the loan applied for. Your employment and income status can play an integral role in helping to convince lenders you are able to afford the loan.
If you are not in employment, do not have a stable, regular income, or simply do not earn enough to cover the cost of the loan, your application could be rejected.
Guarantor
Those with a bad credit history can find it useful applying for a guarantor loan, helping to ensure via a guarantor that the applicants are reliable to lend to and that the loan will be repaid.
While the main borrower of a guarantor loan may not necessarily need a good credit score, a guarantor will have to meet a set list of eligibility criteria helping to prove as evidence that they are able to afford the loan repayments should the main borrower default.
Eligibility criteria for a guarantor may vary from lender to lender, however, the following criteria can typically be required:
- Age requirement: 25 years old or over
- Must be a UK resident
- Hold a good credit history
- Must not be bankrupt
- Can show that they are able to afford the loan if the main borrower defaults
If your loan application is rejected because of your guarantor, you may be able to change this guarantor. It’s important to only pick guarantors who meet the eligibility criteria for the loan you are applying for, and that they know their responsibilities in this role and agree to them.
Age
You might also be declined if you are not old enough to take out a loan. The minimum age restriction for loans is 18 years old, however some loans may require borrowers to be older than this (e.g. the age restrictions for guarantors can be 25 or over).
When applying for a loan, you’ll have to provide your date of birth, or confirmation that you are aged either 18 years old or over.
How Do I Find Out Why My Loan Was Declined?
You should try to find out why your loan was declined through the lender you applied with. There could be various reasons why you were declined for a loan with the lender, and the simplest way to find out is by contacting them.
Once you’ve found out the reason why your loan was declined in the first place, you can then try to improve on this for any future applications, helping to better your chances of success with borrowing next time.
