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Why your loan risks rejection

Here are a few reasons why your loan application could be heading for the reject pile and how to avoid it.


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So, you’ve looked at all the options and decided that a loan is the right option for you. Maybe it’s for home improvements, to fund education or to pay for a holiday – but whatever the reason it must mean a lot to you or you wouldn’t be considering going into debt.

Unfortunately, there are a number of things that people do when applying for loans that can mean they find their application is rejected and their plans plunged into chaos.

Here are a few reasons why your loan application could be heading for the reject pile and how to avoid it.

Different lenders take different approaches to risk. Some are happy to accept applicants with lower credit scores by simply raising the annual interest rate offered. Others won’t accept applicants who do not meet their own set of criteria.

You can assess how likely you are to be accepted for a top-of-the-market loan by checking your credit score. Your report will give you an indication of whether you can apply for the very best rates available, or if you need to look for more specialist lenders.

There are a number of reasons why a credit history might put lenders off. Perhaps you have struggled to manage debt successfully in the past, perhaps you have made a series of applications for credit in a short space of time. Maybe you have simply never used credit in the past, so a potential lender doesn’t know how you handle debt.

By taking some time to improve your credit score you can make it less likely that your application will be rejected or that you’ll be offered a much higher rate of interest.

Of course, it might be that there are mistakes on your credit file, such as debts that you have settled still being listed as outstanding. Checking your file allows you to correct any errors before they affect your application.

Check your credit score and report for free on ClearScore.

Lenders now have more responsibility to make sure their customers can afford any borrowing and that is why they factor in considerations like your income and any existing debt obligations. Look seriously at whether you can afford a loan before applying for one – this may include drawing up a budget, and there are some good tools available online to help you with that.

If you are concerned a loan may be unaffordable then a lender is likely to have concerns too – a rejection can be a wake-up call that your finances need some work.

Think: how much do you spend each month on food, bills, clothing, travel and so on, and how much would your monthly repayments be? If they would bring you right to the edge of what you can afford, then you may need to consider putting off the project you’re borrowing for, borrowing a smaller amount or spreading the debt over a longer period so that your monthly repayments are lower. Bear in mind that if you do that you will pay more interest over the term.

Identity theft, whilst rare, is a real and ongoing problem, and it can take would-be borrowers by surprise. All too often the first sign a victim has that something is wrong is when they apply for some form of borrowing like a loan or credit card, and get rejected because a fraudster has been using their identity to access credit illegally.

Checking your credit score before you apply can reassure you that your identity has not been tampered with.

Lenders like to know that a would-be borrower is in a stable position, as a way of measuring risk. The more stable you are, the less risky you might be to lend to. These are some of the things lenders look at when trying to assess your stability:

The age of your credit accounts

Having at least one credit account that you’ve had for a few years may be seen as a positive sign in the eyes of a lender. This is because it shows another lender has trusted you for a long time.

How stable your level of borrowing is

If your debt levels are going up and down dramatically, or if you’ve been applying for lots of credit in a short period of time, this may be taken as a sign that your financial position isn’t very stable.

Read our article on the factors that affect your credit score to find out more.

Applying for a loan and being rejected can be a real blow and may leave you tempted to turn to a more expensive credit option like a payday loan, an unauthorised overdraft or even a loan shark.

However, that can cost a vast amount more and be a quick route to problems with debt. In short, it’s often a bad idea. If your loan application has been rejected, then it’s a good idea to pause and take stock. After all, if the lender has refused on the grounds that you cannot afford the borrowing then maybe it’s worth considering whether that is the case. An unaffordable loan is in no one’s best interests.

Whatever you do next, try to avoid continuously applying for credit. A number of rejected applications made in a short period risks damaging your credit score, making it even less likely you will qualify for a loan in the future.

If you applied for the loan because you wanted to pay off other debts or cope with bills and living expenses, that could be a sign you’re in difficulties and it might be time to talk to a debt counsellor.

If you’re genuinely confused as to why you have been rejected, because you know you can afford the borrowing, then you should ask the lender which credit bureau they used to check your score. Then you can check for mistakes on your report that may have affected your application. (Don’t forget that on ClearScore you can see your report for free, anytime you like.)


Lucy has a wealth of personal finance knowledge, and is one of our in-house experts.