What Causes a Personal Loan Decline?
Bad Credit, Too Many Loan Applications, High Personal Debts
Feb 17, 2009
With the economy now officially in deep recession, personal loan decline rates are on the increase. After causing the recession and plunging millions of people into financial difficulties, the banks are belatedly applying more restrictive criteria when assessing loan applications. This has meant that only those with good credit and well-paid jobs are likely to be approved for a personal loan.
Nationwide, the UK's largest Building Society has recently changed its method for assessing personal loan applications. Whilst the loan size used to determine what APR someone wishing to borrow money paid, this is no longer the case. Those seeking to borrow money who have any form of bad credit, including late payments, now face a high APR of up to 19.9%. What leads to a personal loan decline?
Personal Loan Declines and Bad Credit
A bad credit rating can be caused by a missed or late payment and loan default. Bad credit sets off alarm bells to any lenders offering unsecured personal loans. Most banks won't lend money to someone that has bad credit. However, some will offer a slightly higher APR personal loan to those with minor adverse credit, such as a late payment.
Not Being on the Electoral Register
Those that aren't on the electoral register are unlikely to get a personal loan application approved. This is because, in the event of default, a debtor is likely to be vastly more difficult to trace. For this reason, it is important that anyone seeking to borrow money is on the electoral register. Home owners are most likely to be approved for a personal loan.
Borrowing Money and Affordability
Those seeking to borrow money in the form of a personal loan will normally have their ability to pay assessed. Those with high debt-to-income ratios are vastly more likely to experience a personal loan decline. This is because any financial difficulties increase the likelihood of personal loan default.
Errors on Credit Reports May Lead to Personal Loan Decline
There are errors on personal credit reports which can and will result in a personal loan decline. It is possible to order a copy of a credit report from Experian for just £2. Experian also offer people 30 days free access to their credit report online. Check for any errors and be sure to get these corrected before making any personal loan applications.
Excessive Personal Loan Applications
Making too many personal loan applications in a short space of time is a great source of concern to lenders. It sets off alarm bells that someone seeking to borrow money has financial difficulties. Every credit search stays on a credit report for 12 months.
It may sound obvious, but always make any payments on money borrowed in full and on time. Bad credit will normally result in most banks declining a loan application. Check credit reports for errors and don't make too many loan applications. There are unsecured personal loans available for those with bad credit, but they charge a high APR of 50-60%. Secured loans are normally more competitive.
Those that found this article useful may also be interested in reading about the pros and cons of secured loans and avoiding loan sharks. A comparison of secured loans and unsecured loans will help someone decide which is the better option for their own unique personal circumstances.
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