If your loan application is declined, then it is likely that your financial history does not meet the lender’s criteria. You might be considered as too high risk, for instance due to a low credit score. It has been revealed that 45% of young borrowers are unaware of the importance of a credit score in securing a personal loan, thus making it a key obstacle for many people.
However, there are many alternatives that can be explored if a loan is denied. This guide will attempt to reveal to you some of the other options available.
What Should I Do If My Loan Application Is Denied?
1. Contact the lender
Speak to the lender and find out why your application was rejected. They should send you an adverse action letter with an explanation. Once you know the reason, you can try to rectify the problem so that you have a better chance of approval next time.
2. Review your credit report
Get your free annual credit report and check it carefully to get an idea of what the lenders can see. Look out for any mistakes or anything that might have negatively affected it and see where you can make improvements. You can check your credit report through agencies such as Experian, Equifax or Trans Union.
If you have a poor credit rating, it is worth thinking about ways to improve your credit score. Examples include trying to pay off any existing debts and joining the electoral register if you have not done so already.
3. Check your links
Make sure you are not linked to someone with a poor credit history. For instance, if you have an old joint bank account with an ex-partner your score could be tarnished or if you live at the same address as a relative with a bad credit history, you could be unfairly financially associated with them.
It is also important to consider that it might not be your fault! Your application could have been declined because the lender did not have the capacity to distribute any more loans that month.
When Can I Apply For Another Loan?
Typically, it is recommended to wait a minimum of three months between loan applications. This includes for credit cards, car finance or even a new phone contract. If you suddenly make lots of applications, lenders might worry that you are desperate for funds which might make them more likely to decline your application.
Whilst it can be tempting to apply for another loan straight away using a different lender since each one uses different criteria, it is important to note that having lots of credit checks or declined enquiries from hard searches leaves a footprint behind on your credit file for other lenders to see and can lower your credit score. In this case, the best way to protect your credit file as much as possible could be to wait a few months and then to use a broker who can undertake a soft search for the best lender for you without any traces.
What Other Options Do I Have If My Loan Application Is Rejected?
If you need money now, additional options to consider include:
- Borrowing from family or friends if they are able to lend you money.
- Using a credit card, although this cannot always be used to transfer a balance or to draw money.
- Talking to your bank about setting up an authorized overdraft as a short-term solution.
- Applying for a bad credit loan which helps those with low credit scores – note that the interest rate tends to be higher than if you had a stronger credit score.
- Enquiring for a loan with a guarantor who will take joint responsibility for the loan. They will need to have a strong credit score to qualify for this.
- Trying to get a credit union loan – you will need to join the credit union first by having something in common with the other members.