Many people think that a bad credit score is the main reason lenders reject their loans. Still, after analysing over 14 million payday loan applications, we found that over 69% of applicants were declined because of technicalities, regardless of credit score! We’ll break down what these reasons are so you can increase your chances of approval.
Here are the four main reasons why your application may have been declined and what you can do next:
- Short Application Form
- Your self-declared affordability
- The dubious recycling factor
- Credit score errors
You should check these 4 reasons first, as they are the easiest to fix. If you are still declined for a payday loan, it could be because of poor credit. You can increase your chances of getting a loan by improving your credit score. Click here to read our complete guide to credit scores in 2023.
A 2023 lenders internal tip to boost your acceptance rate:
In 2023 the FCA introduced the “consumer duties” principles, ensuring lenders treat everybody fairly and offer products borrowers can afford. But what does it mean to you? The person that needs money fast and can’t get it from his bank? The simple answer is: It would get harder to get approved. Lenders will probably approve fewer people, and their approval criteria will get even more stringent.
But there is some good news for FamilyMoney readers:
Our experts at FamilyMoney spoke to leading FCA-authorised lenders. And there is one Mega-Tip that can help you get approved even faster when working with those leading direct lenders.
Because the approval importance is shifting from credit score to affordability, Top lenders in the UK allow you to securely connect to your Salary or HMRC record directly on the loan application form, allowing the lender to calculate your affordability before even looking at your credit file.
It is BIG news because many people that could get approved based on affordability are getting declined by the credit score review even before they get to the affordability assessment. If you see the option to provide your salary slips or securely connect to your salary provider, always do it! Help lenders get you approved for the right loan.
Short application form
Short application forms is responsible for millions of loan applicants getting declined every year in the UK. For brokers and “appointed representatives”, who own most of the websites in the UK, applications equal money. Unlike payday loans direct lenders, they make money on the numbers of applications they sell to direct lenders. The more they sell, the more money they make.
Long application forms make many users abandon the process in the middle. If the user does not apply, the broker makes no money. The solution: many brokers and affiliates made the forms shorter.
Shorter applications are more convenient and simpler to fill out and therefore increase user conversion. Simply put: more people complete the application form and apply for a loan. Click here to find out what you should consider before applying for any loan.
The problem with this solution is that it works for the broker but not for the consumer trying to get a loan. The reason is simple: when a lender assesses the application and some fields they require are missing, the application will automatically be declined, even before checking the personal credit score.
So next time you come across a short and easy application form, please keep in mind that your chances of getting approved are much lower. For further information, please read our article about how to identify brokers and affiliates here.
Loans application questions:
Loan applicants are commonly being declined for a loan because of their credit rating. If you have a bad credit rating, or haven’t build up your credit rating at all, lenders are unlikely to deem you a fit candidate for a loan.
Your borrowing history, in the form of your credit score, is the main area of interest for a lender when you apply for a loan with them. Ideally, a lender wishes to see proof that you have a good history of borrowing and repaying loans. There are direct lenders for people with very bad credit, but their rates can be very high and they should only be considered in an emergency.
In the event that you have been declined for a loan, you may wish to take a step back and reconsider your approach. The crucial first step is to find out exactly why the loan application was declined. This will reveal to you the area which you need to improve. Once you have proceeded to fix the issues found on your credit report, you must then systematically rebuild your credit score to the desired level that will grant you the loan that you seek. Once you have researched the market while taking the time to compare personal loans and ensured that you meet your selected lender’s criteria for the loan that you need, you may proceed to apply for a loan again.
If you are unemployed, successfully applying for a loan can be very difficult, but not impossible. Lenders are generally less likely to be in a position to offer you a cash loan if you are unable to provide proof of income. Loans that you may be able to be granted if you are unemployed, with no source of income, tend to be expensive. Therefore, these types of loans are unsuitable if you wish to borrow amounts larger than £1,000.
Your self-declared affordability
Before checking your credit score, FCA authorised lenders will try to assess your affordability based on the numbers you provide on the application form. As a rule of thumb, short term lenders will consider your loan request affordable if the monthly repayment is not higher than 70% of your “disposable income”. Many users rush to complete the loan application without giving this crucial factor a thought.
A direct lender website will always show you the estimated monthly repayment; a broker will not! If the monthly repayment is higher than your “free income”, applying for a loan will be futile. It is essential you are honest with your answers. If something does not make sense, lenders will decline your application based on the values you provide without even checking your credit score. Did you know that you can get your credit score free from the 3 main Credit Reference Agencies?
Employment stability is another measure, with which lenders use to assess affordability. If you have recently started a new job or you skip between jobs regularly, it is harder to determine whether you have the stability to make loan repayments.
The dubious recycling factor
Lenders will decline duplicate or repeated applications. Many brokers and affiliates will share your loan-application trying to maximise their outreach to sell your details. In the industry, it is known as the recycling factor. Brokers are very aggressive on capitalising on your loan application, and in many cases, they sell it to other brokers who sell it to other brokers. Remember, brokers cash in on sold applications. If you believe you may have been mis-sold a loan you can find out here how to successfully complain against a payday lender.
However, application recycling is terrible for the consumer and for direct lenders.
- Always try to apply with a direct lender directly.
- Never apply to several different broker sites within 24 hours as this will dramatically increase your chances of getting declined.
Credit score errors
A recent report revealed that 42% of people who checked their credit report discovered an error. Errors on your credit profile may be the fault of previous creditors. Mistakes, for example, include duplicates, outdated information or mistaken identity. Don’t disregard credit report errors, find out the mistakes that can affect your credit score.
You can check your credit score for errors on credit reference agencies for free. If you spot a mistake, you need to contact the creditor who provided the information and dispute the errors.
Conclusions on having your loan application declined
Many loan applications are declined regardless of the credit-score factor. Following the guidelines above will improve your chances to get approved for an affordable loan. Please remember, applying with these errors will not only get you declined but with time will make it harder for you to be approved for proper credit. It will also allow brokers and affiliate website to trade on your personal details.
If payday lenders keep declining your loan application, you should try to apply for a loan over a longer period of time. Consider the monthly payment amount rather than the amount of the overall loan. It may be easier for responsible lenders to approve you with a loan over a longer period of time where the monthly repayments are lower.
Another option for people who are having their loan applications declined is to take out a guarantor loan. It may seem awkward to have someone else participate in your loan application, but if you are honestly trying to re-establish your financial standing and have full intention of repaying the loan, a guarantor loan may be the ideal solution. They are more common than many people realise, with many thousands of guarantor loans being approved in the UK every year.
Many loan applications are getting declined regardless of the applicant having a high credit-score.
If you find that you are getting declined for a loan because of poor credit, you can try borrow money from a pawn shop. Getting approved for a loan with bad credit is easier from a pawnbroker than an online lender.
Stay safe! If you need a loan, please do spend the required time to fill in your application properly. And always, apply with a legit website. Keep in mind that for every FCA authorised lender in the UK there are over 15 websites of broker and affiliates. We hope our guide was helpful for you. Please download our factsheet PDF before applying for your next loan.
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