Getting your loan application denied can feel like the end of the world. But it’s no time to panic. The important thing is to try to understand why it was refused. It’s then key to look at what you can do to boost your chances of success next time you apply.

Here, we’ll look at the reasons why lenders deny applications and how to improve your financial viability.

Why do lenders deny some loan applications? 

Each lender has their own way of assessing your loan worthiness. Some also specialise in offering loans to certain types of customers. This is why Asda Money compares offers from a range of carefully selected and trusted UK lenders, so you have a variety of options to choose from.

However, it’s helpful to know some of the reasons why a lender could deny your loan application, such as:

Your credit history

Lenders want to see a good credit history before they agree to lend money. A good credit history shows you’ve borrowed money responsibly in the past and are potentially less of a risk to lenders. It may be that you’ve not borrowed much previously so there’s little history to illustrate how you manage credit.

Or you may have a poor credit rating. This may be the case if you’ve borrowed before and missed payments or maxed out your credit cards. If you have a history of missed payments or a County Court Judgement (CCJ) for example, lenders may view you as too risky to lend to at the moment.

Income

There are a couple of different reasons why a lender may deny a loan application based on income. The first is that you don’t meet the lender’s minimum requirement for income – this means that your income isn’t high enough for them to lend to you. It’s hard to know if your income is high enough when you make the application, as lenders don’t publish this information and this may vary depending on many other factors.

The second is that your debt-to-income (DTI) ratio is too high. This is calculated by dividing your total monthly debt payments by your monthly gross income. It’s important to try and get this down as much as possible when applying for a loan.

Past account history

Lenders will keep records of any accounts you’ve had with them in the past and how well you’ve managed them. Things like late payments can impact your loan eligibility.

Other reasons for refusal

Credit history and affordability are key factors looked at by lenders, but they’re not the whole picture. Lenders may also refuse on the following grounds:

• There was a mistake on your application: Things like writing your address incorrectly or even spelling your name wrong can result in your application being refused.
• Unstable employment: If you’re self-employed, a contract worker, or a freelancer, lenders may view you as riskier compared to an employed person with a stable job.
• You’re not on the electoral roll: If you’re not on the electoral roll at your address, lenders can’t confirm it.
• Unstable residence: Only living at your current address for a short space of time or having multiple addresses within a short period can sometimes limit your chances of getting a loan with some lenders.
• You’re linked to someone with poor credit: If you’ve applied for a mortgage or a joint credit card with someone before you may still be financially linked to them. If they have a poor credit rating, this may be taken into account by lenders looking to lend to you.

What can I do if my loan application has been refused?

If your loan application has been refused, you can speak to the lender to see if there’s a specific reason you’ve been rejected. It could be down to your credit score, or your income isn’t high enough. It helps to understand why, so you can work to improve your chances of being accepted for a loan in the future.

If you’ve been refused a loan by a lender, it’s important not to apply for another loan straightaway. Loan applications show up on your credit score, and too many in a short space of time can indicate to lenders that you’re having money problems. It’s better to concentrate on the things you can do to put yourself in a better financial position so you may be accepted further down the line.

How can I improve my credit score?

You can improve your credit score by:

• Signing up for the electoral register: This simple thing can help boost your credit score quickly as it means lenders can confirm your address.
• Checking for mistakes on your credit file: Errors can seriously harm your credit score. Check your history regularly and apply to a credit reference agency to get any mistakes removed.
• Demonstrating financial responsibility: Make sure you don’t miss any of your monthly payments, whether credit cards or bills.
• Showing responsible borrowing: Tools like credit builder credit cards are a great way to borrow money and show you can pay it back.
• Applying for a notice of disassociation if you’re financially linked to someone: This will cut your financial ties with that person, so their poor credit rating won’t harm yours.

How else can I borrow money?

If you’re refused a loan, consider:

A credit card: A credit card is often more suitable if you need to borrow a smaller amount over a short period of time. Consider a credit builder credit card to help boost your credit score.

 : If you have a loved one who’s willing to lend you the money you need, you won’t need to go through the process of applying for a loan. Depending on the agreement you have with your friend or family member, you might not need to pay interest. It makes sense to draw up a loan agreement before you borrow the money for some clarity on exactly how much the loan is and the repayment term.

Saving up: Yes, you might not get the money immediately, but saving up means you won’t go into debt at all.

What is a bad credit loan?

If you’ve had money problems in the past, you may be left with a poor credit rating. In some cases, you may be able to get a loan with poor credit. Often this will be with a specialist lender – they may not offer you a loan for the full amount and will likely only lend to you with higher interest rates.

But if you can borrow with bad credit, this can help boost your credit score in the long run. By sticking to your monthly repayments you’ll show responsible borrowing, which will go towards a stronger credit score.

How Asda Money can help

At Asda Money, we work with a panel of carefully selected and trusted UK lenders, that could provide you with a personal loan that matches your borrowing needs across a term that works for you.

You can use our free personal loans calculator to get an idea of how much it might cost in the long run. Then, with one simple eligibility check, you’ll get offers from some of the best lenders on the market. You’ll just need to find the right one for you before going on to complete a full application with the lender.

We can also help you understand how to better manage your finances with our Financial Support.