If your loan application is rejected, it’s undoubtedly frustrating. But don’t panic, as it’s not the end of the world. Loan applications get rejected for a whole host of reasons, and there are some simple things you can do to improve your chances of approval in the future. Here, we explain what you need to think about if your loan application has been rejected and which steps you can take to borrow the money that you need.
Is a loan right for you?
A loan is only one form of credit, so it’s helpful to consider if a loan is right for you in the first place. For instance, you might be able to take advantage of store credit or a Buy Now, Pay Later arrangement. Each type of credit has different advantages, so it’s worth considering your options before settling on a loan, particularly if you’re struggling to get approved.
Assess your credit file
A common reason why loans are rejected is due to errors on a credit file. These errors are not necessarily your fault, but you need to correct them. To do so, you can reach out to the major credit bureaus in the UK – Experian, Equifax, and TransUnion – to request a copy of your file. You need to review it carefully, as even the smallest mistakes can affect your ability to borrow the money that you need.
Are you eligible?
Every lender sets eligibility requirements that borrowers must meet if they’re to be approved for credit. As such, you need to make sure that you’re eligible for the loan that you’re applying for before submitting an application. If you don’t meet the eligibility criteria, your application will be rejected right away. Many lenders set age limits and stipulate how long you’ve lived in the UK as their criteria and may even stipulate the range of credit scores permitted.
Improve your credit score
Another reason why traditional lenders reject applications is due to a borrower’s credit score. Therefore, if you have a history of making late payments, your credit score is likely to be low. While it takes a little bit of time to improve your credit score, you can make improvements by paying all of your bills on time, registering to vote, and ensuring that your file is error-free. Improving your credit score is really important, so make sure you take the required steps before resubmitting an application for a loan.
Consider an Open Banking lender
Since its launch in 2018, Open Banking has changed the way that borrowers can access money. Lenders like Koyo Loans utilise Open Banking to ascertain every borrower’s financial circumstances before approving or rejecting each loan application. Instead of relying solely on credit score, Koyo Loans is more concerned with your current financial circumstances, and their use of Open Banking means that you stand a better chance of being approved, particularly if you don’t think that your credit score is a fair reflection of your current financial situation.
The bottom line
Ultimately, it’s important not to panic if your loan application is rejected, as there could be several reasons why your application wasn’t approved. So, with that in mind, take the steps listed above before reapplying for credit, and you stand a much better chance of approval.