Did you know that over 69% of online loan applications in the UK are declined because of technicalities, regardless of your credit score? Many people think that a bad credit score is the main reason lenders reject their application. Our comprehensive analysis of over 14 million applications reveals a whole other reality.
To make it as helpful and straightforward to our readers, we list the four main reasons for getting declined here and what you can do next:
- Short Application Form
- Your self-declared affordability
- The dubious recycling factor
- Credit score errors
Short application form
This reason alone is responsible for the declining of millions of loan applications in the UK every year. For brokers and “appointed representatives”, who own most of the websites in the UK, applications equal money. Unlike 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.
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.
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.
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.
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 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, out-of-date information or mistaken identity. Don’t disregard credit report errors, mistakes can really 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 getting declined regardless of the credit-score factor. In this article we cover the most common mistakes people are doing. 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 a proper credit. It will also allow brokers and affiliate website to trade on your personal details.
Many loan applications are getting declined regardless of the applicant having a high credit-score.
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 the next time you apply for a loan.