You applied for a loan but you received a negative answer? Unfortunately, banks have the right to refuse to grant credit without giving a reason. So how do you know the reason for rejecting our application and what can you do to ensure that your next application is approved? Here you can find out the most common reasons for refusing a loan and what to do if your application is rejected.
What can affect the bank’s refusal and how to deal with it?
1. Terms of employment
One of the factors that may decide to accept or reject your loan application is the type of contract you are working on and the amount of your earnings. If you work on a mandate contract, are self-employed or have a fixed-term contract, the bank may look at your application less favorably than for a person working on an indefinite contract. Banks analyze not only the type of your contract, but also the length of service.
Depending on the institution in which you apply for a loan, the minimum duration of employment is 6 to 9 months or, in the case of your own business, 12 months. The industry you work in is not insignificant either. People working in the so-called “High risk industries” may have difficulty getting a loan. High risk industries include construction and transport companies, casinos, pawnshops and seasonal industries. This is mainly due to the regular receipt of our remuneration. In the case of these industries, the risk of lending us a loan is higher, because when and how much affects your account depends on what profits the business makes at the moment.
Our advice: If the employment conditions do not work in your favor, try to get a loan from a private lender or loan broker. Private financial institutions will be more interested in the regularity of your account proceeds than in the industry in which you work or your employment contract. You can also meet with a credit advisor who will tell you where to apply for a loan.
2. Bad credit history
A bank considering a loan will definitely take into account your credit score and your credit history. In the UK, every lender is required to check the applicant’s credit history before granting them a loan. There is therefore no such thing as a loan without a credit check. This means that your loan application may have been rejected due to your low credit rating. The lender also takes into account your credit history, so how you managed to pay your financial obligations so far. If you have ever been late in paying installments or were late with paying bills, your application may be considered negative. Interestingly, a lack of sufficient credit history can also be a reason for a loan refusal. Lenders are also not favoring those who have never had any financial obligations to pay or have too low activity on their settlement account.
Our advice: Check your creditworthiness (e.g. here) and see if it is the reason why your loan application was rejected. If so, work on improving it. Here you will find some effective tips on how to improve it. If your problem is a lack of creditworthiness, it is worth buying a product in installments or get a credit card and pay it back regularly – it will show the lender that you have full control over your finances and are a trustworthy person.
3. Too many financial commitments
Too many loans raised can be an obstacle to getting additional funding. If you use several loan products at the same time, your bank may think that giving you another loan will be too risky and will reject your loan application. So if you have several loans in your account, even high earnings will not be able to speak in your favor. The bank will also look unfavorably at people who have loans in non-bank companies. Unfortunately, the bank in which we are applying for a loan may interpret such a loan as our inability to deal with finances. Nevertheless, if you already have such loans on your account, do not hide it and mention them in your loan application. The lie has short legs and sooner or later the truth will come out.
Our advice: Make sure you limit your financial obligations. Pay off at least some of your debts or combine several debts into one easy to supervise consolidation loan. Wait until your financial standing is stable and then submit a new loan application. Otherwise, the next answer you receive from the bank will be refused.
4. Incorrect data in the loan application
The reason for rejecting our loan application may also be something mundane, such as incorrectly completing a form. Unfortunately, even entering your details incorrectly or a typo can affect whether we get a loan. The same may apply to leaving the fields in the loan application empty. All the questions contained in the form are there for a reason, and therefore must be completed. It can also be a problem to distort information about yourself – overstating income or undercutting expenses is quite common practice. It is worth remembering, however, that the bank or the institution granting us the loan may at any time verify the information provided by us and based on it reject our application. Therefore, deliberately providing incorrect information can take revenge on us very simply.
Our advice: Before you approve your loan application, make sure it does not contain any errors and that all the information it contains is true. Remember, these are things that you can influence, so don’t let them work against you.
5. Failure to meet the lender’s minimum requirements
Each lender has a list of requirements that all lenders apply for. This list is the minimum we must meet to qualify for a loan. If we do not meet these requirements and have decided to apply for a loan, we can almost certainly expect a negative answer. It is worth noting, however, that even if the bank offers loans to 18-year-olds, a person of legal age will have a lower chance of a loan than a 20-year-old. The same applies to applicants who are too old. The chances of getting a loan for a retired person will be less than for a full-time adult.
Our advice: Before applying for a loan, make sure that you meet all the requirements set by the lender. If you are in doubt or do not meet one of the loan terms, hold off or check if there are competing lenders on the market whose requirements you are able to meet.