If you’ve been rejected for a loan and you’re unsure what your next step should be, BestShortTermLoans have put together this easy-to-follow guide on the reasons why some lenders say “no” to short-term loan applications.
In this article, we’ll look at:
• why lenders say “no” because of the details you’ve gave them when apply,
• what leads lenders to say “no” when they see your credit report even if they’re happy with the information you provided them when applying,
• what to do next after being refused, and
• other sources of finance if you really do need the money right now
Why was my loan application rejected?
There are many different reasons why loan applications are rejected. It’s normally something you’ve put on your application form or it’s something that a lender has found on your credit report that they don’t like.
To give you a better idea of why, let’s look at each one in detail…
The details you entered when you applied for your loan
Sometimes when you apply for a loan, a potential lender doesn’t need to do a credit check on you because they believe that, from the details you entered when you applied for your loan, you wouldn’t have enough cash left after all your outgoings to be able to make the repayments in time and on full.
Under UK law, all lenders must be licensed by the Financial Conduct Authority and part of the assurances and guarantees that they have to give the Financial Conduct Authority to get their licence is that they’ll only lend money in the right way. The Financial Conduct Authority believes that if a company agrees to lend money to a borrower and they don’t believe that the borrower will be able to afford the repayment then that’s “irresponsible lending”.
Different lenders behave differently. Some will say “no” to any amount of money because they think you shouldn’t have asked for that much money in the first place. Others will say “yes” and, subject to a credit check, offer you a smaller amount of money.
Do you already have existing payday loans?
Payday loan companies and short-term loan companies don’t like it if a customer of another payday loan or short term loan company asks to borrow money when they still have repayments left on their original loan.
What they’ll worry about is that you’re using their loan to pay off the other loan. If this is the case, it’s often the start of something called a “debt spiral”. A debt spiral describes a situation when someone is taking out new forms of credit all the time to pay off older forms of credit. At some point in the future, the debt spirals out of control, no-one wants to lend them any money anymore, and the borrower defaults on all the loans they have outstanding.
If you already have a payday loan or a short-term loan with repayments left to make, you may want to approach your current lender when your loan is at least 50% paid off to see if they’ll advance you anymore.
You don’t fit the lender’s “profile”
Each lender has a profile. A profile describes the type of person they like to lend money to. A profile contains requirement like a minimum level of earnings every month, how long someone has lived at their current address, how much their outgoings are every month, how many County Court Judgements they have, and so on.
Lenders generally only feel comfortable and confident lending to people who fit closely or exactly to their profile.
The problem is that lenders don’t generally publicise what their profiles are. That’s why nearly two-thirds of all short term loan applications are turned down – it’s because people are unknowingly applying to a lender who wouldn’t be able to help them in the first place because they’re in the wrong profile.
You’ve been making lots of different loan applications lately
Any company extending credit – whether that’s a short-term loan provider, a bank or building society, or a credit card company – really doesn’t like it if there have been multiple applications by a potential borrower for a loan. Every time you make a full application for a loan, a footprint is left on your credit report that every other lender you apply to can see.
In their eyes, it makes a borrower look desperate for money and it suggests to them that this person has lost control of their finances.
This might be completely unfair. It might be that a borrower has been making a handful of applications to short term loan providers and that the borrower has not matched the profile of any of the lenders so far.
Whether it’s fair or not though, every lender thinks the same way so be extra careful when applying for a loan.
Are you unemployed?
If you’re currently out of work and/or the vast majority of your household income is made up of benefits, most lenders will not want to lend you money because they worry about your ability to repay the loan.
There are some lenders who do consider applicants who are out of work or whose income is made up primarily of benefit payments but they are hard to find.
Do you use online gambling?
You may have heard this lately that more and more lenders, including short-term loan companies and payday loan companies, do not like to lend money to people who gamble. It’s true and not true at the same time.
Your credit report often contains details of the companies you make the most payments to. Gambling has become a lot easier since the introduction of online and mobile phone apps – it’s never been simpler or quicker to have a flutter on the football or the horses.
If a lender sees lots of different payments to gambling companies, they may worry about whether you’re responsible enough with money to be able to meet the repayments if they do accept your loan application.
How much is too much? That varies from lender to lender. The odd flutter every now and again won’t count against you in all likelihood but please do be aware that this is something more and more lenders are taking into consideration when they decide whether to say “yes” or “no” to an application.
Have you missed any payments lately?
Every time you take out a loan or a credit card, the company providing you with the loan or the credit card keeps a score on your payments with a credit reference agency. If you make a payment on time and in full, they’ll put a tick on your credit report. If you miss a payment, they put a cross.
It’s not just finance companies any more either. Mobile phone companies, gas and electricity companies, mobile phone providers, and more now send this information routinely every month to a credit report agency.
Some lenders will reject an application straight away from a borrower who has missed a payment. Others are more lenient. Some may want you to supply your internet banking details under new rules called “Open Banking” so that they can come to an opinion on how you handle your finances.
Your wages aren’t transferred to the bank account you’ve given a lender
It’s not uncommon for people to have more than one current account. It’s more unusual now than it used to be but some people are still paid in cash.
Either way, if you give bank details to a payday loan company or a short-term loan company and that bank account does not receive your wages when you’re paid them, it makes it impossible for a lender to verify that what you’ve told them about what you’re paid and when you’re paid.
If a lender can’t satisfy themselves that what you’re telling them about your wages is true, almost every lender will turn your application down. In fact, we’re sure that every lender would turn you down.
Are you bankrupt, in an Individual Voluntary Arrangement, or subject to a Debt Relief Order?
Most loan providers will not lend money under any circumstances to someone who has been declared bankrupt, who is in an Individual Voluntary Arrangement, or who is subject to a Debt Relief Order. Most lenders will ask you about this during the course of your application. If they don’t ask you, they’ll discover it when they run their credit search.
Did you make a mistake when you applied?
It’s surprising how many people make mistakes when filling out an online application form. However, most people are now applying for a short-term loan or payday loan via their smartphone and it’s much harder to input the right details on a smartphone than it is on a desktop computer.
What about my credit report?
Assuming that the details you gave during the application were satisfactory to the lender, the next step in the process is that the payday loan company or short-term loan company will want to run a credit check on you. Depending on what a lender finds, your application will be accepted, rejected, or they’ll need to contact you to answer a few more questions before they make their mind up.
If your application is turned down, could it be what was on your credit report that made the difference? Let’s consider what lenders look for.
Do you have enough of a credit history?
It may sound strange but it’s much easier to get credit from one company if another company is already giving you credit. If your credit report doesn’t show that much activity on it and you’ve never taken out a financial product which you’ve been required to make repayments on, loan companies get nervous.
Why do they get nervous? It’s because there’s no track record on dealing with credit on your report. Think of your credit report as something that builds up over time – it’s something you’ve got to work on.
Is your credit record less than perfect?
Payday loan companies and short-term loan providers are well known for being more interested in who you are now rather than in any credit problems you might have had three or four years ago. If you’ve kept your credit record clean for a good length of time now and they’re happy with your income, short-term loan companies will seriously consider you for a loan even though the banks won’t.
Sometimes though, even though your credit report might show that things have been really good with you for the last few years, it won’t fit the “credit report” part of a lender’s particular profile we mentioned earlier.
Are you in a lot of debt already?
Your credit report shows any potential lender all of the current and live credit and loan accounts you have open.
Lenders have a couple of ways of looking at this. Some lenders feel uncomfortable if your credit cards have high balances on them. Other lenders will not like it if the amount you’re repaying to service your debts is too much.
To be considered for a loan with some lenders, you may have to wait 6 or 12 months (sometimes even longer) so that your credit card balance is lower as is the amount you’re paying out every month in debt repayments.
Next steps to take after your short-term loan has been declined
It’s not the end of the world. There is a strong chance that you might just have applied to the wrong lender. It might be that, had you filled in exactly the same information with a different lender, that they would have said “yes” to your application.
What should you do in the event that you’ve been turned down?
Speak to the lender who said “no”
Phone your lender and ask them for the reason your application was rejected. It’s unlikely they’ll divulge such sensitive information via email or a live web chat for data protection reasons.
Some lenders will be very honest and direct with you. Others will just turn around to you and say that you didn’t meet their criteria but they won’t tell you which criteria you didn’t meet.
Check your credit file for any mistakes
Did you know that 10 million adults have found errors on their credit files? It’s far more common than anyone who doesn’t work in the credit reporting industry would imagine. As the Daily Mirror puts it, “(a)n inaccurate report could jeopardise your chances of a loan, mortgage or even mobile phone contract in the future – don’t let a mistake cost you”.
Join either site and see what’s written about you. If there’s a mistake, check to see whether they take their credit report “feed” from either Equifax, Experian, or CallCredit. Whichever one it is, contact the company to let them know what the error is and give them a chance to correct it.
Do you really need a short-term loan?
You will be disappointed that your application was rejected but it also gives you a chance to think about whether you actually really needed the money.
Payday loans and short-term credit loans are designed to be used for an unexpected bill that you can’t pay for any other way. They’re there to help out in emergencies like your car breaking down, funeral expenses, medical bills, and so on. They’re not there for gifts, nights out, treats, or more.
If you have been turned down and you do need the money, you could speak to family and friends to see if they can help you out through the difficult period. Alternatively, your boss might be willing to help tide you over if you let him or her know what’s going on.
Should you apply through BestShortTermLoans if you’ve been rejected for a payday loan?
At Best Short Term Loans, we’re not lenders – we are experienced credit brokers. This means we help you compare deals from short term loan companies across the country to help you find the cheapest loan for you.
How do we do this?
Thanks to our close relationship with all our lending partners, we know exactly what they look for in a borrower. It might just be the case that the lender who turned you down likes to work with borrowers with a different profile. It might also be the case that we know a lender or lenders who would really like to hear from you..
We do all the hard work for you and our service is completely free of charge.
To get short term loans from our panel of top UK lenders, apply with Best Short Term Loans today.