Refused a loan, what to do next
Refused a loan, what to do next
Nobody likes to be told no, and when you’ve applied for a loan which comes back declined, it can feel like one of those “your name’s not down, you’re not coming in” moments – pretty mortifying. But while your pride may have taken a dent, it’s not the end of the world; what’s important is finding out why you’ve been refused a loan as well as considering the alternatives.
Your credit history
Everyone’s heard of credit reports and if you’ve ever applied for a loan, mortgage, credit card, or any other type of credit, then you’ll have one. Credit reference agencies hold this information and there are three main ones in the UK – Experian, Callcredit and Equifax. All the details held about you will help lenders decide whether or not to loan you any money.
Why have I been refused a loan?
Having a country court judgement (CCJ) or history of missed, late or defaulted payments could mean that lenders see you as a risky investment and aren’t willing to give you a loan.
You could be refused because you’ve applied for numerous loans or credit in a short space of time. Multiple loan applications imply you’re seriously hard up and need constant top ups of cash; lenders will be wary of this as it indicates that money management isn't one of your skills and that you must have been turned down numerous times.
Or, you may have been turned down because of a genuine mistake; perhaps your address was written incorrectly or your name’s been spelt wrong. Maybe you’ve just got very little credit history; ironically, if you’ve never borrowed or taken out credit, you could struggle getting a loan approved. Lack of credit history just means that lenders have no idea whether you’re good at repaying money.
It could be that you just don’t meet the target audience for a particular lender. While it never feels good to be rejected because you just don’t fit a profile, at least you know it’s nothing personal. Some lenders specialise in providing loans to those on low incomes, or who live and work within a certain area, such as with credit unions.
What can I do if I’ve been refused a loan?
You can ask to see your credit report and check whether the information held on you is correct. Callcredit offer you free, unlimited access to your information as does Experian (the largest agency) if you download their app. Otherwise you can have a free trial period like with Equifax.
If something is wrong in your report, the agencies have 28 days to investigate. If they don’t feel any amendments are necessary, you can write a ‘notice of correction’ which will be added to your file. Notices should explain why you think a specific detail is wrong, or if you’ve missed a payment it should make clear if there were any mitigating circumstances at the time (such as if you were seriously ill).
If you need to raise funds, then don’t think a loan is your only option. Think about how much money you actually need – if you need to buy something like a new washing machine, look at getting a credit card with 0% interest on purchases. Or if it’s just a little bit of cash you need, could you get an overdraft facility set up on your current account?