Credit Declined – Who Is This Article For?
Whoever makes a loan request often needs the money promptly. Be it for a new purchase, to bridge a financial bottleneck or to finance a car. The time of a loan rejection is always unfavorable because valuable time is lost to find out why the loan was rejected and because a new loan application has to be made. We would like to save you this inconvenience and help you to get a quick, but above all serious installment loan.
This article is especially aimed at
- Applicants who need a loan but are unsure whether it will be approved.
- Applicants whose credit has been declined and who need a quick alternative.
How does the article help you?
- We show you what are the most common reasons for a loan rejection. Using this, you can then check in advance whether your credit request will be approved or do everything possible to ensure that a loan is approved.
- We will show you how to react correctly to a loan rejection, what to do so that the loan is still approved or what alternatives you have.
Why do banks refuse loans?
If the bank refuses a loan, this is not done arbitrarily, but for self-protection. When granting a loan, the bank first checks the applicant’s creditworthiness. Legal requirements and the bank’s general terms and conditions serve as the basis. If the applicant’s solvency is considered unsafe because of a negative Credit Bureau entry or because the creditworthiness is insufficient, the loan is rejected. The bank assumes that the applicant cannot repay the loan on schedule. In order to protect against the damage of the default, the credit request is therefore rejected.
The 10 most common reasons for a loan rejection
With a little preparation and planning, however, many of the reasons that lead to loan rejection can be avoided. We have put together the 10 most common reasons why a loan is refused. This way you can prevent unnecessary mistakes when making a loan request and increase the chance of a loan approval.
10 reasons why your loan will be rejected
- You are still in the trial period
- You are in a temporary job
- You have been self-employed for less than 3 years
- Your income is too low and is not proportional to the loan amount
- There is a bad credit rating due to negative Credit Bureau entries
- Open return debits are noted on your bank statements
- There are bookings from debt collection companies
- You have overdrawn your overdraft facility
- Current loans and leasing rates were not specified when the application was submitted
- You are over the maximum age
What to do to prevent the loan from being rejected?
Do you have one or more of the 10 most common reasons for a loan rejection? In this case, keep calm! There is a solution for many of these points. A loan approval is therefore not excluded. The following tips will increase your chance of getting a loan.
Tip 1: Find a surety
The initial situation: The request for a loan is almost always rejected if there is a temporary employment relationship.
The reason for the loan refusal: banks need collateral to grant loans. If you are in the trial period, you can be terminated within 6 months. Your income is therefore not secured in the long term. The bank does not want to take this risk and rejects the loan request. The situation is similar for the self-employed. If you are self-employed for less than 3 years, a loan rejection is likely. It is said that the first 3 years as a self-employed person are the hardest and it takes 2-3 years until a regular and secure income is achieved. Lenders are aware of this and often reject the loan of the self-employed.
The solution: find a guarantor. In the case of a guarantee, a third person, for example your spouse or someone from your relatives, takes over the guarantee for the loan. Put simply, this means that the guarantor agrees to repay the loan if you can no longer pay.
Tip 2: Provide enough collateral
The initial situation: It is conceivable that you will not receive any money from the bank, even if you are in permanent employment, if your income is too low or if the loan amount is not in relation to your income.
The reason for the loan rejection : If the loan amount you want to borrow is not in proportion to your income, the loan is rejected. Although each bank judges how much credit you get differently, income and monthly expenses serve as the basis for the calculation. Basically, after deducting the current rent and living expenses, you should still have enough free income to be able to repay the monthly installments for the loan. If this is not the case, the loan will be rejected because your credit rating is insufficient and you would “live above your means”, so to speak.
The solution: Determine in advance how much credit you would actually get. So-called online loan calculators can help you with this. In addition, provide sufficient collateral that the bank can access in the event of insolvency. This can either be property security, i.e. wealthy objects, real estate or vehicles, as well as personal security, as is the case with a guarantee.
Tip 3: Have incorrect Credit Bureau entries deleted
The initial situation: In the first step, the lender determines how likely it is that you can repay the loan on time or settle invoices according to the contract. The lender receives all the necessary information about this from the General Loan Protection Association, better known as Credit Bureau. Negative entries at Credit Bureau have a negative impact on your loan request and, in the worst case, can lead to the loan being rejected.
The reason for the loan refusal: The bank uses the Credit Bureau entries to make a forecast of your creditworthiness. The more negative Credit Bureau entries you have, the worse your creditworthiness and the greater the risk that the loan will be rejected. Credit Bureau entries are negative if you have already been given a loan, if you have had payment defaults when repaying a loan or if there are entries in public debtor directories about you.
The solution: The Credit Bureau entries are not always correct. By law, you have the option of obtaining a free Credit Bureau self-assessment once a year. In this way you can check your data for correctness and, if necessary, request the erasure or correction of incorrect information.
Tip 4: Be honest when reporting on yourself
The initial situation: Again and again, prospective creditors forget to state their current credit line and open bills when applying for a loan. If the bank learns of these or similar financial obligations through Credit Bureau, your chances of getting a loan decrease. Therefore, the lender always requests a copy of the bank statements. Often retrospectively for the past 3 months.
The reason for the loan rejection: If there are direct debits or bookings from debt collection agencies on the bank statements, it is very likely that the loan will be rejected. Banks also do not like to see an overdraft facility overdraft. Your debt level is considered too high and the loan is rejected.
The solution: You will not be granted a loan without proof of your salary statement and bank statements. Therefore, be honest with yourself and the lender when submitting the application and show all open positions that you have to pay monthly. As already mentioned above, this includes the overdraft facility, but also open payments to mail order companies, the leasing contract and zero-percent financing are also considered loans. This is the only way to increase the chance of a loan approval and avoid the loan rejection. By doing so, you are showing the bank that you have nothing to hide. You can also request rescheduling of all outstanding items when you apply for the loan. This means that you ask the bank whether all current loans can be rescheduled through a new and, above all, lower-interest loan. This way, the bank knows that you have an overview of your finances and want to reduce your debts.
Tip 5: Ask the lender about the age limit
The initial situation: Loans are only granted when they are of legal age, i.e. from the age of 18. In many cases, however, applicants also exceed the maximum age individually requested by the bank – with the result that the loan is rejected.
The reason for the loan refusal: Loans are often only granted up to the age of 65, in some cases up to the age of 78. The risk of default due to illness or death is simply too high for many lenders.
The solution: getting older is more difficult to get a loan, but it’s not impossible. Find out from the various loan providers about the maximum age for lending. Consider residual debt insurance that covers the loan amount in the event of illness or death, or reduce the term of the loan so that you can repay the loan within a reasonable period of time. Another way of preventing loan refusal is the guarantee described above.
Current conditions installment loan
Representative example according to §6 PangV: net loan amount 10,000 €, 84 months term, effective annual interest 4.24%, bound interest rate 4.16%, processing fee none, total amount 11,543.68 €, OFINA credit, status: today
Are you looking for your individually fitting installment loan? Use our installment loan comparison and compare several loan offers.
Compare loan interest rates
Credit rejected despite positive Credit Bureau! How does that come?
In some cases, a loan is declined even though none of the above reasons exist. Then it is difficult for you as a borrower to understand how the loan rejection occurs. The bank basically gives you the reason for the loan refusal. How does it happen that the bank refuses the loan despite a positive Credit Bureau? The answer often lies in the internal scoring of the respective bank.
The banks’ scoring methods
Banks first determine the creditworthiness of an applicant using the information from Credit Bureau. In addition, each bank also has an internal scoring method that creates a risk profile for the applicant. This means that you are assigned to a group of people based on the information you provided when applying for a loan. The criteria for this group of people are very similar to yours, for example in terms of income, expenditure, age or level of debt. If this group of people has good scoring, the loan is approved. However, if you fall into a group of people who have difficulty repaying the loan, the loan will be rejected.
What data is included in the bank scoring?
When determining the scoring, each bank proceeds individually and does not provide any detailed information about the collection of the scoring value. However, it is likely that the Credit Bureau score will serve as basic information and will be supplemented with the applicant’s individual scoring criteria. The scoring criteria include:
Profession: Here you can see which employment relationship you are in, ie unemployed, training, studying, but also whether you are a simple or senior employee or civil servant.
Salary and expenses: It looks at how much you earn as an applicant, how much expenses are incurred by those living in the household and how much actually remains in the end.
Location of the place of residence: The so-called geoscoring determines the creditworthiness within your street or the residential area. If your neighbors are solvent, the loan is committed. If, on the other hand, these are highly indebted and the credit rating is negative, it is likely that your loan will be rejected. Data protection officers criticize this approach because it violates the data protection law.
As you can see, lending depends on different criteria. Despite positive Credit Bureau and good creditworthiness, a credit cancellation can follow due to the internal bank scoring. In the following, we will show you how to react correctly if the bank rejects your loan request.
What to do if the loan is declined?
If the bank refuses your loan without one of the 10 most common reasons, the motto is: keep calm! Even if you are shocked and upset at first because you urgently need the money, you shouldn’t rush into anything. Above all, stay away from loan sharks and loans without Credit Bureau. In the following we will show you how to react correctly to a loan cancellation.
Credit rejected – so you react correctly!
- Seek the conversation with the lender
- Find a new lender
- Stay away from dubious offers
Seek the conversation with the lender
The bank basically tells you why the loan request was rejected. If you don’t, you should ask the reason for the rejection. Definitely try to talk to the bank. Have the reason for the refusal explained and ask what you have to do to get the loan. If the loan approval remains hopeless, there is the possibility of a guarantee, as described above for the 10 reasons for the loan refusal, or you have to make another loan request from another bank or a lender.
Find a new lender
If the credit cancellation for you is due to the internal bank scoring and not, for example, to a negative Credit Bureau, then there is a good chance that you will get a loan from another lender. Because, as already described, each bank determines its scoring individually. Do not act impulsively and supported now! Even if you need the money urgently, you should not make a loan request to any number of loan providers simply because you believe that this increases your chances of getting a loan. Because every loan request with the note “request loan” has a negative impact on your Credit Bureau score and increases the possibility of a loan cancellation.
For every loan request, pay attention to the note “No negative Credit Bureau entry will be generated” or to the note “Request loan condition”. In these cases, the bank only requests information from Credit Bureau to determine the conditions and not a credit report, as with “Credit Request”.
In our credit comparison, we have listed providers who carry out an “Inquiry Conditions” and thus do not trigger a negative Credit Bureau entry. The credit provider must inform you at the latest when filling out the application route whether a Credit Bureau entry is generated. If there is no indication, you should definitely ask for this information before sending the credit request.
Stay away from dubious offers
For many borrowers, a loan rejection is shocking because the money is urgently needed. This is adopted by dubious providers and lures with supposedly good loan offers. We recommend that you stay away from so-called loan sharks or loans without Credit Bureau. Ultimately, such offers often turn out to be tempting offers, which you have to pay for in the end and thereby get into debt unnecessarily.
The disadvantages of loans without Credit Bureau and of loan sharks are, among other things, excessive interest rates, so that these providers protect themselves against the risk of credit default. In addition, there may be fees for the credit approval as well as costs for sending documents or a chargeable hotline and unnecessary additional products that are sold with the application. With dubious lenders, you always end up paying. There are few serious alternatives.
Good alternatives for loan rejection
If you urgently need money and a loan approval is hopeless and you cannot find a guarantor, there are few serious alternatives.
Debt counseling as an alternative for loan rejection
If your loan request is rejected by several banks, there is probably a reason for this: you are heavily in debt and cannot afford to repay another loan. In this case we advise you to contact a debt adviser. There are over 1,000 debt advice centers throughout Germany. You can find a contact person near you at the Debt Advice Forum. You can also get advice from Caritas free of charge and online. Debt counseling helps you to organize your documents, get an overview of your finances and shows you how you can reduce your debts. With a high level of debt, the best alternative that we can recommend to you.
Alternatively, private lenders help with the loan rejection
Alternatively, if you don’t get a loan from a bank, you can use private lenders like auxmoney. This is a good alternative to the bank, especially for the self-employed, start-ups or older people. At auxmoney, private individuals borrow money from each other. This does not mean that everyone gets a loan. A credit check is also carried out here. The chances of getting a loan despite a negative Credit Bureau are higher than at a traditional bank.
The pawnbroker, a possible way out if the loan is refused
If your loan is declined, going to the pawnshop is a possible alternative. You will be given a loan if you return an item – this can be jewelry, a laptop or a car. The pawn shop estimates the value of the item and pays you this sum within a few minutes. The pawnbroker usually keeps the item safe for 3 months. If you can repay the borrowed money, plus fees and interest to the pawnshop within the 3 months, the item will become your property again. However, if you are unable to raise the money during this time, the item will be auctioned.