Top Reasons behind Your Loan Application Getting Rejected

by John Thomson Financial adviser

We all need to borrow money at some point in our life, which is when individuals and even companies look for external financing options. Loans from commercial banks and alternate financing mode in direct lenders' likes are famous in the UK.

The interest rate on these loans varies on a case to case basis, but banks charge lesser interest rate than direct lenders. However, not all borrowers are fortunate enough to get the loan due to eligibility issues or many other reasons discussed in detail in this blog.

There are direct lenders in the UK offering door to door loans with no credit check. These loans are also meant for borrowers having a poor credit score who are not usually entertained by established commercial banks.

Reasons for Loan Rejection

Let’s now look at some of the key reasons behind your loan application not getting through, here it goes:  

 

·        Credit Profile is the Key

This is one of the primary reasons as to why your loan application is getting rejected multiple times. A credit score is the main parameter that the bank checks to clarify the borrower's repayment history and whether he has honoured his repayment obligations.

Your credit file that the lender can access while assessing your loan application. This file will apprise the lender whether you are a credible borrower or not, and thus it affects the approval or rejection decision taken by the bank.

Even if your credit score is low and the loan is approved somehow, the interest rate charged will be significantly higher due to higher credit risk.

There are many ways to improve your credit score; the first way is to make all your repayments on time. Another way is to avoid taking additional debt in the form of debt consolidation loans.

You should also try to finish all your existing debt by paying a lumpsum amount and stay debt-free.

 

·        Excessive Debt

You have multiple credit cards which you swipe frivolously, and on the top of that, you have one or more loans in which repayment is going on. A credit score is not the only thing the lender checks. They also check your ability to repay what you are borrowing.

If you are already debt-ridden with an inconsistent cash inflow, the lender will reject your loan application. Bank will ask for your income tax returns for the past 5 years to analyse your cash flow and check your salary or business income. If they think that you will struggle to repay, then your application will be rejected.

You can change this situation by finishing the red flag of excessive debt raised by the lender. Start finishing all your existing debt before applying for a new loan and that application getting rejected further exacerbates your credit score.

 

·        Poor Financial Decision Making

If you have been a victim of poor financial management or have made financial blunders in the past, lenders will also reject your loan application. It could be a missed deadline of repayment in any month or a mention of county court judgement (CCJ) in your credit file after someone has sued you in court due to non-repayment.

This poor financial decision making compels the commercial banks to reject your loan application. Banks can't risk lending you after seeing a history of financial carelessness due to whatever reasons.

These financial blunders stay in your credit file for 6 years, thus if you have made such poor financial decisions then stay away from applying for a new loan for the next 6 years. If you feel the need for an urgent loan, then apply for a bad credit guarantor b.i.g. loans from direct lenders, instead of a bank.   

Erroneous Personal Details

This might seem to be a trivial reason, but it is an essential reason for an instant rejection of your loan application.

Any individual can make silly mistakes while filling a loan application form, and this small typo can act as an impediment in the process of your loan approval. This is because the lender will match the information given by you via loan application with your credit file, and any mismatch can lead to fraud.

At times, if you are fortunate, then the bank can ask you to provide additional documentation as proof to prove your details' veracity. But, not everyone will be as fortunate.

To fix this problem, you should check your credit file and confirm all the credit bureau's details. Then, fill the loan application accordingly so that there is no possibility of any potential mismatch.

Be careful while filling your loan application and double-check all the essential details of the application form. Also, speak to the lender if your loan application is rejected by a simple mistake and see if they can still go ahead with the same application after providing them with an explanation with documents.

Bad Credit of Dependents

We all have heard of this old school saying sharing is caring, but it goes with a caveat, it might not apply to financial matters. If you are a co-applicant in one of your friends or family member's loan, it can impact your ability to get a loan. This is because you are sharing that loan with the primary borrower, and when you apply for a personal loan, the lender will check your credit score and that person's credit score.

If that person's credit score is good, then it won't be much of a problem; however, if his credit history has some pain points, it will have a spill over effect on your loan application.

You can solve this by removing that person from your credit report if his credit score is substandard. This can be done only when you disassociate yourself from the loan you are sharing. And, avoid sharing a financial product like a loan with a bad credit borrower.

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Created on Jan 22nd 2021 07:03. Viewed 282 times.

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