Applying for a loan can be an excellent choice for those who need to raise cash quickly, and in the age of internet banking it has also become very simple. Whether you’re looking to consolidate debt, make home improvements or buy a car, there are options available.
But what steps can you take if you get rejected? Fortunately, there are a number of avenues to consider.
Apply with a broker
Often, people will apply for a loan directly, approaching a specific lender. If this approach does not work though, then you can consider applying through a broker.
A loan broker will take your details and then reach out to several lenders on your behalf to find deals that are applicable to you. The benefit of applying through a broker is that they will likely return several options, some of which may suit your needs better – for example, they may match you with lenders who offer lower interest rates or more agreeable repayment terms.
It is worth bearing in mind how the loan broker makes money – often they will earn a commission from the lender they pair you with, meaning that you don’t pay for the service; however, some will charge you for the service, so it’s worth understanding the terms upfront.
Apply with a different Direct lender
If your loan application has been rejected by one lender, the solution could be as simple as applying directly to a different one.
If you understand why you were rejected. For example, if you were rejected initially because you were asking for too long a repayment term, you can look for a different lender who offers the terms you are looking for. It is always worth doing a little research in the first place to find the lender most appropriate to you, whether that is before your first application or after.
Apply for a smaller loan
Unsurprisingly, the size of the loan you are applying for is a key factor. The lender should provide details on the reason for your rejection if you are unacceptable. If it is because of the amount you have asked for, you could always consider asking for less.
Depending on your circumstance, and what you need the loan for, this could be a perfectly valid option. Indeed, if you initially asked for more money than you would need, then it can be an ideal choice. It is also worth bearing in mind that if you can get by with the smaller sum of money, it will be beneficial to you in the long term as you’ll have less to pay back, and less interest charged.
Look at alternatives
Alternative forms of borrowing are available. An overdraft may be of interest if you are looking for a smaller amount of money, while credit cards may be a good choice for slightly larger sums – it is always worth shopping around with these two options, as different accounts and lenders will offer different terms, and benefits, that may be more favourable to you.
It may also be worth considering non-formal borrowing; if you are able to borrow from friends or family, then you may be able to get the money you need without approaching a financial organisation.
Credit score implications with ‘over-applying’
Your credit score is one of the most important factors in any financial application. When you apply for a loan – or any other form of financial borrowing – you will trigger either a soft or hard credit check. Every one of these will count against your credit score.
Ordinarily, a credit check will not be a problem and might simply knock a few points off your rating. However, a string of checks can ring alarm bells, particularly if you are rejected multiple times. Not only will you lose a few points with every application, but you will also put future lenders off if they become aware that your application to them has followed rejected applications to several others.
A string of rejected applications – known as over applying – will make it clear to lenders that you are unable to match the terms given by others, and increases the chance of them rejecting you too.
If you have been rejected, then it’s important to check the terms of that rejection. If it’s because you have asked for too much, then research to find a lender more suitable. If you are rejected a second time then it is likely that your credit score already is not enough, or that you simply cannot afford the loan you are applying for.
A rejection can be disheartening, but often is an indication of your situation – multiple rejections, while impacting your credit score, also indicate that you may not be in the position to increase your borrowing.