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Personal loan application

The Ultimate Personal Loan Guide Understanding personal loans assessment

Learning Highlights
  • Reasons for refusal for a personal loan application
  • Is the credit score correct?
  • The myth of blacklisting
  • Refusal for a top up loan
  • Lenders of last resort

If this is your situation there are a number of reasons why you may have been unsuccessful and in this article we will look at some of the reasons behind the lender’s decision and what alternatives there are to taking on a personal loan.

Most lenders will be upfront about why an application has been turned down. If they base the decision on a poor credit score, they should advise you which credit reference agency they used. But, they are under no obligation to reply to your question with full details. For example, a lender may say that your credit score is not good enough, but is not obliged to say whether this is due to late payments or for some other reason such as a previous debt collection.

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Getting Refused for a Personal Loan Application Online

Here are some of the most common reasons why people get turned down for credit:

  1. Your credit history could have late or missed payments, defaults or county court judgments
  2. You’ve made multiple credit applications in a short space of time
  3. There was a mistake on your application form. For example, if you live in a flat, your address may need to be written – “Flat A, 125 High Street” and not “125A High Street”
  4. You may not be their target customer for example some lenders want to lend to those with high or low incomes

– Source: Experian Credit Rating Agency

Personal Loan Application and Credit Scores

Credit reference agencies are not perfect and can only work on the information they have been given by lenders. This means that sometimes mistakes do occur. Applying for and looking at your credit file will allow you to see whether the information is all correct. If necessary you can ask the agency to make corrections to help improve personal loan approval.

To rectify errors you can send a detailed reason why you think the file is wrong. Include any written evidence that you may have. e.g. if your file shows you as unemployed you can enclose copies of current payslips.

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A credit agency must act within 28 days of any request to change the details on a file. While it undertakes an investigation your file will be marked as ‘disputed’.

Note – on Experian website – Being refused for credit does not, in itself damage your credit score. Whilst your credit report shows that you applied for credit, lenders won’t be able to see if you were refused

Blacklists

Most financial organisation would have you believe that there is no such thing as a blacklist. For the most part, this is true. The records that are held by credit reference agencies show borrowing details and personal records about employment and residency. These are some of the factors involved in creating a credit score.

So, no credit agency will have a set list of people who are unable to borrow. However, there is a database which does hold details of frauds and some people have found themselves unwittingly added to this list. The number of people on the list is small, around 640,000 but being added to this database can cause problems if you want to borrow.

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Addresses And Blacklists

Some people are under the illusion that their address might be blacklisted if a partner has a bad credit score. However, this can only happen if you hold a joint loan, bank account or mortgage. Just sharing a home with someone who has a poor credit score will not affect your ability to borrow.

Similarly, if you have rented out your home to someone who has left behind debts, this will not affect your future borrowing. Lenders track borrowers through the electoral roll. So, if you have been turned down after an application it will be for some other reason and not because a previous tenant caused the problem.

The National Hunter database was set up by lenders in 1993 and is solely concerned with preventing fraud. Lenders that have concerns about customer applications can register them on the database, which can be viewed by 50 member organisations

– Source: The Telegraph March 2015

NHunter

How Does The National Hunter Database Work?

If a lender has worries about an application they can send details of the applicant to the database and this information is available to lenders who subscribe to the service.

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Entries on the database remain on there for six years and a lender is not under any obligation to notify an applicant that they have been added to the list.

Any potential borrower who is on this database will find it impossible to get credit. The company that runs the list will allow you to check the file to see whether you are listed but there is no facility to lodge a dispute and you have to contact the lender who added your name.

So, although it is rare, the possibility of ending up on this fairly limited blacklist is still out there.

Other Factors That Can Affect A Personal Loan Application

If you are certain that you have the means to pay back a loan and have not missed any payments or otherwise had a bad credit record, there could be other reasons behind a rejection.

Lenders look at a number of factors and not just the fact that you have always made payments in full and on time.

If you already have outstanding loans you could be turned down because a lender thinks that you are at your limit of borrowing. Banks and finance companies will assess your income and outgoings as well as ascertaining exactly how much debt is outstanding. As responsible lenders they might feel that you have reached your safe limit.

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Personal Loan Application Status

Declined – The Next Steps To Take

Having your personal loan application turned down might be a shock. However, it is important that you do not re-apply to another lender straight away. Each time you make a personal loan application, the information is lodged on your credit file. This is one of the ways that a credit score might be adversely affected.

Making multiple applications within a short space of time smacks of desperation. Although lenders cannot see the outcome of the personal loan application, they will be unlikely to view you as a good risk. In addition, making lots of applications in a short period of time might cause lenders who are considering your request to offer a higher rate of interest or to lower your borrowing limit.

Looking For Alternative Personal Loan Options

Having been turned down for a personal loan you may be wondering what other avenues are open when you need to borrow some money. At this point, it is worthwhile taking a step back and seeing whether there are other options to further borrowing.

Taking out a personal loan to pay for an expensive item is one thing but borrowing to pay off other debts is a completely different scenario and not one that should be undertaken. An exception might be when considering a debt consolidation loan to make your repayments easier.

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If this is the reason for your application then it is time to get some good advice from a debt advisor. You can find access to free advice by contacting the Citizens Advice Bureau or one of the debt charities in the UK.

Top Up Loans

Why Have I Been Turned Down For a Top Up Loan?

You have been paying off a personal loan and have applied for a top up sum but have been refused and want to know why.

This situation is not uncommon and can be for a number of reasons. The lender may have assessed your current situation and decided that further borrowing is not in your best interests. Even though you can prove your income is sufficient this may not be enough. Lenders are now much more responsible than in the past and must adhere to certain standards set out by the FCA.

If the loan request is with your own bank, one reason for non-approval is if there has been certain kinds of activity on your current account.

If you have applied for a payday loan, even if it has been repaid in full and on time, this can flag up concern for a lender. Likewise, if you have used your current account funds to place bets online, the lender might not feel that you are not responsible enough to take on further borrowing.

All lenders are at liberty to reject a personal loan application for a top up loan. They will always try to avoid what they consider to be irresponsible lending. Following the financial crisis, lenders were heavily criticised for irresponsible lending and they are now more discerning when it comes to allowing extensive borrowing.

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Bank Loans

Where Can I Get A Loan If My Bank Has Turned Me Down?

Being turned down by your lender of choice does not mean that you cannot get credit at all. There are number of financial institutions which specialise in lending to applicants with lower credit scores. However, the downside is that you will almost certainly be asked to pay a higher rate of interest than if your score was better.

Lenders Of Last Resort

There are a number of alternatives to taking out an online personal loan including applying to a credit union or borrowing from your family. If these options are not available there are lenders of last resort and these include payday loans companies and door step lenders. However, both of these options are not really suitable for anyone who is in need of a large sum.

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Payday loan lenders provide a service for anyone who needs a very short term loan perhaps over one or two months. These lenders should not be used for large borrowing. This is because the personal loan rates and interest charged can be very high if the loan lasts for longer than 3 months.

Similarly, door step lenders might appear very attractive but some of them are unlicensed and you will be paying very high amounts of interest that could result in even more debt.

Citizens Advice also raises concerns about lenders putting pressure on people already struggling with repayments to take out a new doorstep loan to cover them. Doorstep lenders are also turning up unannounced at people’s doors to sell loans.

Doorstep loans are provided directly to customers’ homes by a lender. The lender returns each week to collect repayment. In the majority of cases, borrowers apply for the loan online or over the phone and are then visited by a lender with the cash.

It is estimated that over 1.3 million people in the UK use doorstep loans. The average loan size estimated to be £500.

– Source: Citizens Advice Bureau

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How to Improve Your Credit Score

One final aspect to consider if you have been turned down for a loan is that you just may not have enough history of borrowing. If your credit file is ‘thin’, i.e. you have not applied for a credit card or loan previously, lenders might consider you a higher risk. This is purely because they do not know how much of a risk you will be when it is time to make repayments.

One useful way to improve your credit rating considerably is to go instead for a “credit building credit card” or “bad-credit credit card”.

These are specifically designed for those with poor credit and can actively improve your rating as you use them.

By using them and paying them off in full on a regular basis you can demonstrate your ability to handle credit and thereby improve your credit score

– Source: Money.co.uk website

Summary

In short, you should always shop around for a lender who is more likely to accept your personal loan application. But, be prepared to pay a higher price in charges for borrowing. Also take the initiative of improving your credit score. This should help you get approved for personal loans in the future.

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