Rejection of a Bad Credit Loan
  • Alan Jose
  • May 5, 2020

If your credit score is not up to par, you will not be able to get your loan approved from a bank. Thanks to direct lenders who invite applications from subprime borrowers too. You all know that you can apply for a loan even if you have a poor credit rating provided you must have a repayment capacity. As long as you convince your lender that you can afford to pay back the money you are borrowing on time, you will likely get your loan approved.

Though lenders follow lenient policy when it comes to lending money to subprime borrowers, it does not mean that you will always get the application approved. The score between 561 and 720 is considered harmful, but it does not mean all borrowers falling under this category will get the loan signed off on.

Even though a lender approved application with a bad credit score, you may be cast aside if your score is lower than the one mentioned in their policy or you cannot afford to pay back the loan.

It means it is not easy to get a lender signed off on your loan application with bad credit. A lender will look into your repaying capacity and financial behaviour toward the debt in the past before approving the loan application. If you fail to meet the criteria or prove your repaying capacity, a lender will turn down your application.

Now the question is if there are any other alternatives. What if you need money urgently and your application is cast aside? Here are some alternatives.

Arrange a guarantor

Repaying capacity and a fixed income source are a must to get very bad credit loans with no guarantor from direct lenders. There are some circumstances when a lender will not approve these loans; for instance, you have lost your job.

With an additional income source like a part-time job or unemployment benefits, it is not possible to get approval for these loans. Under such circumstances, you can arrange a guarantor with a good credit rating.

If you arrange a guarantor, it will mitigate the risk of the lender. You and the guarantor will sign into the agreement. In case you make a default, the lender can call upon the guarantor to pay back the loan. With a guarantor, you can get the loan at affordable interest rates.

Remember that any default made by you will affect the credit rating of the guarantor too. It can spoil your relationship with the guarantor. Make sure that you are borrowing as per your affordability.

Take out a joint loan

Another alternative to borrowing money when your application is cast aside is you can take out a joint account. You can take out a loan with someone in your family like your spouse who has a good credit rating. It lowers the chances of rejection and mitigates the risk of the lender. Since the other person has a good credit rating, you will likely get the loan at affordable interest rates. Do not forget that the default will affect credit scores of both of you.

Put security

When you are not able to arrange a guarantor, nor are you ready to take out a joint loan, you can secure your loan. Not all lenders will allow you to secure the loan. You should talk to them before relying on this option. If you put collateral against the loan, it will be worth higher than the borrowing amount so that the lender can recover money by liquidating assets in case you fail to pay back the loan.

A secured loan can help you borrow a large amount of money. However, the interest rates will likely be higher because of a poor credit rating.

When you fail to get an application approved for very bad credit loans, you can arrange a guarantor, put collateral and open a joint loan account. However, securing a loan against collateral is not very popular because lenders do not allow for it for a short-term loan.

If you have a bad credit rating, you should try to improve your credit rating. Try to stay on top of your expenses and stay within a budget.

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Representative Example

Amount of credit €2,500 for 2 years. Interest rate: 75.3% pa (fixed). 24 scheduled monthly payments of €204.29. Total repayment of €4,902.91. Interest: €2,402.91.Representative 107.57% APR.

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