Why Was I Declined for a Loan?

You’ve applied for a bank loan, but your application has been rejected by the lender. Here’s the most common reasons why people are declined for loans.

You submitted your application only to find that youve been declined for a loan. Youve been a loyal bank customer for many years, so the rejection makes no sense to you at all. If you find yourself in this position, youre certainly not alone. Following the financial crisis, the criteria used by financial institutions has been tightened considerably so more people will be rejected for credit.

The first piece of advice that must be followed is that you shouldnt apply for too many financial products within a short timeframe. Each time that you make an application, a credit search is recorded by each of the major credit reference agencies. This will be visible for 12 months in the UK. Most lenders decline personal loan applications if youve already applied within the last 30 days.

Why Was I Declined for a Loan?

Poor fit for the lender – Before you apply for a financial product, check to see if youre likely to qualify. If you dont, applying is a complete waste of time. Theres lots of different lenders, so take some time to find a lender thats more statistically likely to approve an applicant based on your credit profile.


Employment status – If youre doing temporary work, youll be rejected for a loan. Most loans are a 5-year financial commitment and lenders want employment stability. Although there are no guarantees in life, youve got more chance of repaying the money youve borrowed with a permanent job.

Size of loan – You may want to borrow £15,000, but do you earn enough money to afford the repayments? After waiting a month, you may wish to consider applying for a smaller loan.

Past defaults – If youve failed to manage your credit obligations properly, itll be very difficult to get approval for an unsecured loan for the next 6 years. Customers whove defaulted in the past are far more likely to do so in the future. You may need to take steps to improve your credit rating before applying again.

Too much debt – Other than the way youve handled your credit obligations, the second most important factor is how much money you owe relative to the amount that you earn. If you do have a high debt-to-income ratio (DTI), this may be why you were declined for a loan. You need to pay down your debts.

Credit report errors – Although we expect the information held about us to be accurate, this isnt always the case. In order to avoid a loan decline, order a statutory copy of your credit report from Experian, Equifax and CallCredit for £2 each. If there are mistakes, you can get them corrected.

Closing unused credit cards – It seems logical to close down unused accounts, but this can lead to a lower credit rating. Youll appear more financially stretched. Its better to use your old cards occasionally and pay off the balance as this will give your creditworthiness a boost.

If you have been declined for a loan, theres no point in applying within 30 days of being informed. Use this period of time to do things that will increase your chances of getting approval. For example, check that the information held about you by credit reference agencies is 100% accurate. Itll take time to correct any erroneous data, but itll dramatically increase the likelihood of approval.