Can’t Get A Short-Term Loan?

Can’t get a short-term loan? What to do next

If you’ve applied for a short-term loan and have been declined, you probably feel disappointed and frustrated. But you need to understand why your application was declined so that you can resolve the situation and increase your chances of being approved in the future. 

This will be especially true if you’re under a lot of pressure to find funds quickly and you’ve exhausted all your other options. Life can be unpredictable, and sometimes it’s impossible to be prepared for what it throws at you. Read on to find out why your application might have been declined. You can also reach out to your lender to find out more information about why your specific application was declined.

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Why was my application declined?

There are several reasons why an application for short-term credit is declined. 

Bad credit score

The biggest reason is usually a poor credit rating and credit file. Your personal credit rating and credit file are specific to you, but it’s something that every UK adult has. When you applied for your short-term loan, the lender will have made a check against your credit file. If your score is poor and your file shows erratic behaviour, missed payments or default notices, you are less likely to be approved for a loan. This may be why on this occasion, your loan was declined.

Applied for more money than you need

When applying for a short-term loan, it’s important to only apply for the amount you need, as long as it’s affordable. If you apply for more money than you need and won’t repay, your lender will see this and decline your application.

Ineligible for the loan

Another reason your application was declined could be that you don’t meet the eligibility criteria. Each lender has its own set of criteria for prospective customers, but there are some standard ones that every lender looks for:

  • Aged over 18.
  • A UK resident.
  • Employed, either by a business or you work for yourself.
  • A UK bank account holder.
  • Receive a regular income.

Failing to meet any of these criteria can immediately make you ineligible for a loan, which will lead to a declined application.

Your questions, answered

As you borrow credit throughout your life, your file builds up and shows a record of your borrowing behaviour and habits. Making your repayments on time and settling your balances fully by the agreed dates improves your credit rating. Missing repayments, making late payments, or applying for lots of loans in a short space of time can negatively impact your score.

There are free tools you can access online to check your credit score. Whilst you won’t see every bit of information in the same detail as your lender does, you will be able to get a general understanding of your credit score. Credit reference agencies update your file on behalf of lenders, and this process can take up to 30 days, so you might notice that your credit file isn’t entirely up-to-date. This could also be one of the reasons why your loan has been declined.

You should use your credit file report to check for fraudulent activity that might be hurting your score. Technology now means that whilst it’s quicker and easier than ever before to apply for credit, it’s also easier for fraudsters to apply for credit in your name. If you see something on your credit report that seems wrong or doesn’t apply to you, contact the credit reference agency to have your file updated.

You also need to check to make sure that your file is not linked to someone else’s – this could be a spouse, friend or family member. If their credit rating is linked to you through a joint account and they have a poor score, this could negatively affect your personal credit rating.

Once you have access to your credit file, check it over for any mistakes or errors. Mistakes can drag your credit rating down unnecessarily, so it’s important to get them fixed. You can do this by reaching out to the company showing the error or ask the credit reference agency to investigate on your behalf.

You should also make sure that you’re registered to vote on the electoral roll. The electoral roll confirms that your address is the address you say it is, which forms an important part of the credit checks that lenders run.

If you have existing loans or credit cards, you can improve your credit score and your chances of being approved for more credit in the future by keeping your utilisation low. Your credit utilisation is how much of your available credit limit you use. For example, if you have a credit limit of £1,000 and you’ve used £500 of that, then your credit utilisation is 50%, and you’re using half of your credit limit. In most cases, using less of your available credit will be seen positively by the lender and will increase your credit score. Try to keep your credit utilisation at 25% or lower if you can.

If you rent your property, typically, your rent payments won’t impact your credit rating. This can be frustrating, especially if you’re an excellent renter and never miss a payment. There are smart companies, such as Canopy, which use open banking where they review the transactions in your bank account and can track your regular rent payments, reporting them to credit reference agencies. Making your rent payments count towards your credit file is a great way of giving it a boost, plus this service is free.

Experian, one of the biggest credit reference agencies, has just released a new, free service that operates similarly, using open banking to track council tax and digital subscription payments (for companies like Netflix) to boost your credit rating further.

It’s best not to apply for any more credit immediately after having an application declined as this suggests to lenders, you’re in financial difficulty, and you may be declined again. It’s advisable to wait at least three months before making a new application.

If you are approved for credit in the future, it’s incredibly important to make your repayments on time. The good news is that lenders make it extremely easy and hassle-free for you to make your repayments – it’s an automatic process and requires no manual input from you. They use a continuous payment authority that takes scheduled payments straight from your bank account on the dates you have agreed. All you have to do is make sure you have enough money in your bank to make the repayments.

When you miss a repayment, your credit file will be updated to ‘overdue’, which other lenders can see when they run credit checks as part of your loan application. It shows them you’ve failed to manage your loan and meet your borrowing obligations. When left overdue for some time, your lender may record a default on your file. A default is a big red flag to future lenders and will stay on your file for six years, so it’s important to avoid getting to the default stage if you can. The very best way to rescue the risk of missed payments is to get in touch with your lender as soon as your circumstances change and you think you might not be able to make the repayment. They will listen to you and work with you to come to a fair solution that stops you from falling into deeper debt.

You can ask your lender to send you a reminder for each payment a few days before it is due, so you’re never caught short. Alternatively, you can add the repayment dates to your calendar or smartphone, so you’re always prepared with enough money in your bank to make the repayment.

Another good next step for when your short-term loan application has been declined is to speak to an expert about what to do next. There may be alternative lending solutions available that better suit your circumstances and are more likely to be approved. At the Money Shop, we have many years of experience in the financial industry and have helped many customers through declined loan applications. Sometimes it can be easier to make a solid plan for moving forward when you have a knowledgeable sounding board. Our team is here to listen and offer the latest lending advice based on your personal circumstances. Get in touch now to discuss your declined short-term loan application and what to do next.