Do You Need a Loan But Been Refused Everywhere?

Have you been refused a loan? It’s a frustrating situation that many people in the UK face. Especially when you need to borrow money urgently. Despite being refused a loan, you can take steps to find the right loan for your needs.  

In this article, we’ll discuss the reasons why you might have been refused a loan. What options you may have. And how to increase your chances of being approved for a loan in the future.

Reasons why you may have been refused a loan?

There are several reasons why you might be refused credit. Some of the most common ones include:

1. Poor credit score

Your credit score is an important factor that lenders use to decide whether you can be approved for a loan. It reflects your creditworthiness based on your past borrowing and repayment history.

A poor credit score suggests that you may be a high-risk borrower. In such cases, lenders may not approve your credit application.

2. Low monthly income

A low monthly income is a common reason why lenders may decline credit applications. Lenders will check that you can afford to repay the loan on time. If your income is low, they may think you could struggle with repayments.

All regulated lenders in the UK must carry out affordability checks. These checks look at your income and expenses to see if you can afford the repayments. This helps ensure that borrowing will not cause you financial hardship.

3. Employment status

Employment status is another important factor that lenders consider when assessing your loan application. Lenders want to make sure that you have a stable source of income. This is so you can afford the repayments for the length of the loan. You may find it harder if you are self-employed or out of work to get a loan.

4. Lack of assets

Some lenders may ask you to provide an asset, such as a home or car, as security for a loan. Using an asset as security can give lenders confidence that they can recover the loan if you do not keep up with repayments.

Not everyone has assets to offer. This can make it harder to get a secured loan. In these cases, lenders may be more cautious when deciding on your application.

5. Too many existing loans or debts in your credit file

Having too many existing loans or debts can be a reason why a lender declines your application. Lenders look for borrowers who can manage their debt well, such as those with a history of making payments on time.

If you already have a lot of debt, it may suggest that you are struggling financially or may find it hard to take on more repayments.

Applying for too much credit in a short time can also affect your credit rating. Multiple applications may appear on your credit report as hard searches, which some lenders take into account.

6. Too much recent credit activity

Lenders assess your credit history when reviewing your application. Your credit file shows how you have managed credit in the past. It includes details such as missed payments, defaults, or County Court Judgements (CCJs).

Lenders may also look at how often you apply for credit. This includes opening new accounts or making multiple loan applications.

A lot of recent credit activity can be a concern for lenders. It may make them more cautious when deciding on your application.

Types of Loans Available

If you’ve been refused a loan from traditional lenders such as banks and credit unions, there may be other options available to you. Below are some of the loans you might be able to get from direct lenders in the UK:

1. Payday loans

Payday loans are short-term loans that are typically due on your next payday. They’re designed to provide quick access to cash and are available to people with bad credit.

It’s important to keep in mind that payday loans can be very expensive. They often come with high-interest charges and fees. This can make them an expensive way of borrowing.

2. Guarantor loans

If you have been refused a loan, a guarantor loan may be an option. These loans require a third party to co-sign your loan agreement. This could be a friend or family member. The loans effectively use the third parties credit history to apply. It can make them a more accessible option for people.

3. Bad credit loans

Bad credit loans are designed specifically for people with poor credit scores. These loans typically come with higher interest rates than other loans.

Before taking out a bad credit loan, it is important to shop around and compare different lenders. Things to look for are the monthly repayments, length of  loan and any other charges that maybe applied.

4. Short term loans

A short term loan might be an option for people with a poor credit score or low monthly income. These loans are usually unsecured and can be used for a variety of purposes. It depends how much you borrow and how long for.

However, people with poor credit may face higher interest rates and strict repayment terms. It’s important to only borrow what you can comfortably afford to repay.

5. Unsecured loans

Unsecured loans are a type of loan that do not require you to put down any assets. These loans can be a good option for those who have been refused a loan because they lack assets.

Steps to improve your chances of loan approval

There are steps you can take to improve your chances of getting approved for loans in the future.

1. Improve your credit score

Improving your credit score can increase your chances of approval in future. To do this, start by reviewing your credit report for errors and addressing any outstanding debts. Consider paying bills on time, reducing credit card balances, and avoiding applying for too many loans at once. It’s also worth getting your name on the electoral roll to vote.

All these can affect your credit score positively. This can improve your chances of loan approval in the future. It’s not fast, but it’s a solid long-term approach to improve your chances.

2. Increase your income

Increasing your income can be an effective way to improve your chances of getting approved for a loan. Lenders usually have income requirements that borrowers must meet in order to qualify for a loan. If your income falls below the required threshold, then you may be rejected for a loan.

3. Find a guarantor

A guarantor is someone who agrees to repay your loan if you cannot. This provides extra security for the lender and may improve your chances of approval. When choosing a guarantor, it is important to select someone who has a good credit rating, is financially stable, and is willing to co-sign your loan.

4. Consider alternative lenders

Alternative lenders offer loans to people who may not meet the strict criteria of traditional lenders. These lenders may be more flexible with their requirements and not just your credit score. They may be willing to consider factors such as your income and employment status. 

There are several types of alternative lenders in the UK. These include online direct lenders, peer-to-peer lenders, and payday lenders. 

One important note. These alternative lenders may have higher interest rates than traditional lenders. It’s important to shop around and compare different lenders before making a decision.

Always ensure that any lender you consider is authorised by the Financial Conduct Authority (FCA). You can check if a lender is FCA-regulated by visiting the FCA Register.

Final words

Being declined for a loan can be disappointing, but there are steps you can take. It is important to understand why your application was not approved so you can work on improving your creditworthiness.

You may consider options such as reviewing your credit file, improving your credit score, or exploring lenders with different eligibility criteria. In some cases, having a guarantor may also help.

FAQs

Disclaimer: The information given above is provided for reference only. This is not financial advice.