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Published 17 October 2022

Can’t Get a Loan? What To Do If Your Application is Refused

While there are many reasons why you may not get a loan, it’s important to understand why you’re being turned down before you make any other credit applications.

When you apply for a personal loan – whether to pay for home improvements, a new car, debt consolidation or anything else – the lender will check your credit history before deciding whether or not to approve your application.

If the lender thinks you are a high-risk borrower who won’t be able to pay back the loan, it may reject your application.

There can be lots of reasons why this might happen, and here we explain everything you need to know so you can plan your next steps if your application is rejected.

Why was my loan application declined?

Lenders don’t need to tell you why they refused to offer you a loan, which can be frustrating when you’re trying to figure out what went wrong. However, some possible reasons that could explain why your loan application was declined include:

What to do after you’ve been refused a loan

If you haven’t been accepted for a loan, you should try to work out why the lender declined your application and aim to resolve that issue before applying again.

There are several things you could do to help increase your chances of getting a loan in the future.

» MORE: Tips for successfully applying for a loan

Check your credit score

If you are rejected when you apply for a personal loan, the provider should tell you the name of the credit reference agency it has used.

You can then contact the credit reference agency and ask for a copy of your credit history, which should alert you to anything out of the ordinary, such as missed repayments or if someone has fraudulently used your personal details to make an application for credit.

You can also check your history to see if it includes any mistakes, such as an incorrect payment or an error with your personal details. If this has happened, you’ll need to contact the agency and ask it to correct the problem.

» MORE: How to check your credit score

Improve your credit score

Your credit score could be a reason for your loan application being declined, as lenders view people with poorer credit histories as a higher risk.

So improving your credit score could help you to get accepted for a loan. You can build up your score in a number of ways, such as by:

» MORE: How to improve your credit score

Don’t apply for another loan straight away

Every time you make a credit application, whether you are approved or not, the credit check by the provider makes a mark on your credit file.

Making a lot of applications in a short space of time may harm your credit score, as it will look as if you’re desperate and not in complete control of your finances. Therefore, it’s important not to keep applying if you’ve been rejected for a personal loan.

Pay off any other debts

If you’re in a position to do so, paying off your existing debts could help you to get a loan in the future. Whether you make overpayments on your credit card or pay off an outstanding loan in full, you could improve your credit score and reduce the pressure on your finances.

As a result, a smaller proportion of your income would go towards paying existing debts so lenders may be more receptive to a new loan application.

What to consider before applying for a personal loan

If a lender doesn’t think that you can afford to repay a loan, it shouldn’t approve your application.

You can work out how much you can afford to borrow and repay each month using our loan calculator, which can give you an idea of what you could borrow without affecting your credit score

Once you make a formal loan application, it will be recorded on your credit history so you should only apply if you are confident of being approved.

Before applying for a loan, make sure you’ve considered the following points:

Alternatives to personal loans

A personal loan may not always be the most suitable option for you. The best way to borrow money will depend upon your circumstances, including your credit score, the reasons for borrowing the money, and your ability to repay your debt.

Family or friends

Depending on your individual situation, borrowing from family or friends may be an alternative to taking out a loan. If you choose this option, make sure you draw up an agreement in writing to try to avoid any disputes over repayments in the future.

Guarantor loan

You could also consider applying for a guarantor loan. Adding a guarantor, who agrees to pay the loan if you can’t, gives the lender extra reassurance so it may be more willing to approve your application.

Secured loan

If you are a homeowner, or if you own another high-value asset such as a vehicle, you may choose to apply for a secured loan.

A secured loan could increase your chances of getting a loan and accessing a better rate of interest, but it comes with the risk that the lender could repossess your property if you fall behind on your payments.

Credit cards

Another alternative to a loan is taking out a credit card. If you do this you should look for one with the lowest interest rate possible and one which you can comfortably repay. There is no point, for example, in taking out a card with a high interest rate that you can’t clear each month as you’ll end up paying out a lot in interest charges.

If you manage to pay off your credit card in full each month, or before the 0% interest period ends (if applicable), then you won’t pay any interest on your card at all.

Bear in mind that the best credit card deals are typically reserved for those with the best credit scores.

Image source: Getty Images

About the Authors

Rebecca Goodman

Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent.

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Rhiannon Philps

Rhiannon has been writing about personal finance for over three years, specialising in energy, motoring, credit cards and lending. After graduating from the University of Cambridge with a degree in…

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