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I Need a Loan but Keep Getting Declined – What Should I Do?

Written by, Marija Petkova

Updated September, 19, 2022

I need a loan but keep getting declined.’

It’s no secret that finding a good loan with affordable rates can be a bit of a challenge. But it’s even harder when lenders are constantly rejecting your application– for seemingly no good reason.

In this article, we’ll explain why your application keeps getting declined and what you can do to improve your chances of getting a loan.

Let’s dive in.

Loan Denial Reasons: Reasons Why Your Loan Got Declined

There are several reasons why your loan application might get declined, including:

Your credit score is too low

One of the most common reasons for rejected loan applications is a low credit score. A good credit score tells your lender that you’re a responsible borrower, and if yours is too low, you may be automatically rejected.

You don’t have enough income

Having a low income is another reason why loans are refused. Lenders usually accept borrowers that can prove that they can afford to pay back the loan, and that’s less likely to happen if your income is low. 

For reference, the median salary in the UK in 2021 was £25,971

You have too much debt

Given that personal debt in the UK rose by over £240 billion in just 10 years, taking out a loan while you’re deep in debt is rarely a good idea. Having too much debt tells the lender that you’re having trouble paying back what you owe and that you’re unlikely to pay the loan back in time.

Your employment history is unstable

Gaps in your employment or frequently switching from one job to another do not always lead to a refused loan, but the situation suggests to the lender that you are more likely to end up in a situation where you don’t have a regular source of income, which would make you come across to some lenders that you are unable to keep up with repayments.

Your down payment is too small

Some loans require putting a down payment, which will impact how much you can borrow and whether or not you qualify for the loan. If the lender is looking for a bigger down payment, then they’ll probably choose someone else.

You have a high debt-to-income ratio

A high debt-to-income ratio indicates that you’re struggling to make ends meet and that you will likely have trouble making repayments on time. Lenders typically only approve loan applications from people with a low debt-to-income ratio.

What Should You Do If You’ve Ever Been Refused a Loan?

It can be pretty disheartening to be refused access to credit loans, especially if you need the money. 

Here’s what you can do to try and improve your chances of being approved next time:

  1. Examine your credit file

Getting a copy of your credit reports will give you an idea of your creditworthiness and allow you to check whether there are any errors on your file that you can dispute to boost your score. It’s best to regularly check your credit reports, especially while you’re looking for a loan, which can help you easily identify inaccuracies.

  1. Improve your credit score

Making timely repayments, catching up on past due actions, and paying revolving account balances can help boost your credit score and increase your chances of getting a loan. Some lenders provide small loans with a fixed repayment rate over a short period of time which could help you improve your credit score.

  1. Check the criteria again

Before you apply for a loan, make sure that you tick all the boxes in the eligibility criteria. If you don’t, you should try finding a lender that offers loans you can qualify for.

  1. Consult with your lender

If a lender refuses to offer you a loan, regardless of whether it’s a bank or a private lender, you can reach out to them and ask why. They may be able to give you some advice on how to better your chances of being approved in the future.

  1. Sign up to vote

Registering to vote improves your credit score because it records your electoral details on your report, which helps lenders confirm your address and number. 

  1. Examine old financial ties

Old financial ties—such as a joint account with someone with adverse credit—can negatively affect your chances of being approved for a loan. If possible, you should close any account and cut any financial ties with people who have a less-than-ideal score.

Looking for a loan with bad credit? Take a look at:

When Should You Apply for a Loan After Being Rejected?

I need a payday loan but getting refused.”

If you got refused for a loan everywhere you apply, it’s best to first check if and how that has affected your credit score.

Lenders normally perform hard checks– which leave a footprint on your credit report– once they confirm that you may be eligible for a loan, but they may reject your application upon a closer inspection of your financial situation.

Hard inquiries shouldn’t hurt your report to a point that it reduces your chances of obtaining a loan since it only knocks off a few points off your credit score, but this can make a difference for applicants that don’t have ideal credit scores. 

That’s why it’s better to apply for one loan at a time to avoid the hit that your credit score may take if more than one lender does a hard check and rejects your application. 

You could also look for a lender that conducts soft checks first

If the hard checks have taken off some points from your credit score, then it’s best to wait until it improves before you send another application. 

If you have a CCJ or an IVA, see:

Alternative Borrowing Options if You Have Been Refused a Loan

If you need money but can’t get a traditional loan, there are other options you can try to get the funding that you need:

Peer-to-peer lending

Peer-to-peer (P2P) lending platforms connect borrowers with individual investors who are willing to lend them money. Interest rates can vary depending on the platform and the borrower’s creditworthiness, but they’re usually lower than those offered by traditional lenders.

Credit unions

Credit unions, being structured and operating much like building societies, are typically more willing to lend to people with bad credit than traditional banks and usually have lower interest rates.

Guarantor loans

A guarantor loan is a loan that involves third-party involvement, usually from a friend or a family member, who agrees to take responsibility for the loan in case you start missing your repayments. Adding a guarantor to a loan will improve your chances of getting a loan (since there’s an added layer of security), but the interest rates are usually high.

Payday loans

Payday loans are short-term, high-interest loans that can be a good option in emergency situations. They give you quick access to funding but are often expensive due to the high APR.

Unsecured personal loans

Unsecured personal loans are regular loans that you can get from a private lender or a bank. They are not secured against collateral, which makes them riskier for the lender, so they often come with higher interest rates. They can still be a good (or your only) option if you have bad credit.

Secured loans

A secured loan is a loan where you put up something you own—typically a property or a car —as collateral. Secured loans often have lower interest rates than unsecured loans but are risky for the borrower since the lender has the right to repossess their property if they start missing payments. 

Hire purchase or leasing agreements

With a hire purchase or leasing agreement, you borrow money to buy an asset – usually a vehicle – and then make monthly repayments over an agreed period of time. These types of agreements can be easier to get than a traditional loan, but the interest rates are usually higher.

8. Debt consolidation loans

A debt consolidation loan is a loan that allows you to combine multiple debts into one single loan with one monthly repayment. This can make it easier to keep on top of your repayments, but you should make sure you don’t end up paying more in interest overall.

Bottom Line 

If you believe that you have a good credit score but are refused a loan or you simply get refused for loans everywhere, the best thing you can do is talk to the lender and ask them why your application was rejected. If you’re being refused loans everywhere in the UK, you might want to consider some alternative options to get the funding you need.

Frequently Asked Questions And Their Answers

How long does declined credit stay on file?

Hard inquiries can stay up to two years on your credit report, but they usually stop affecting your credit score after a year.

Does getting denied for a loan hurt your credit?

Getting denied for a loan can hurt your credit score if the lender performed a hard check. Typically, a hard check would only decrease your score by a few points, which can be an issue if you already have bad credit.

Can I apply for another loan after being declined?

You can, but it’s best to wait for at least 30 days before reapplying for a new loan (if the lender performed a hard check). This will give you time to double-check the application and check your credit report.

I need a loan but keep getting declined” – what should I do?

If your loan application keeps getting rejected, you should check your credit report for any inaccuracies and try to improve your credit score with timely payments.

My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.