Loan declined? Reasons and what to do!
Annoying but often every day: The loan was rejected. There are many reasons why consumers want to apply for a loan, be it to bridge a financial bottleneck or because of more expensive new acquisitions. The shock is great when a loan application is not approved by the house bank or another loan provider.
Reasons for rejecting a loan application
It is sometimes difficult for some consumers to understand why a loan application is rejected. There are a variety of reasons, some of which result from legal requirements or from the general terms and conditions of credit institutions and which prevent serious lending.
Most loan applications are rejected due to negative information from Credit Checker. Credit Checker is the protection association for general loan protection with its registered office in Wiesbaden, whose task it is to protect its contractual partners against possible loan defaults. This is done by checking the creditworthiness of citizens, which is asked by the credit institutions to which a loan application has been submitted.
If the information provided by Credit Checker is to the detriment of the consumer due to its payment behavior, the subsequent refusal of the loan also serves to protect it, as a loan would further worsen its financial position. But there are other reasons that can lead to the rejection of a loan application.
A rejection of the loan application takes place at reputable providers due to different points. The most common reasons can be found in the list below.
The most common reasons for loan rejection
Applications for a loan are often rejected if:
- it is a fixed-term employment relationship
- the employment contract is unlimited, but the loan application is made during the trial period
- the applicant is self-employed and the start of his self-employment was less than three years ago
- the level of income is too low
- Return debits are already shown on the bank statements submitted as evidence
- the current account is within the planned credit line
- Bookings from debt collection companies to collect outstanding payment claims can be proven on the basis of account movements
- the applicant is too young or too old to be awarded a Good Finance
The reasons for the rejection are largely due to the lack of security on the part of the applicant. This applies, among other things, to temporary employment contracts and possible unemployment, or to self-employed people who are self-employed for less than three years.
Avoid unfavorable debits on the checking account.
In most cases, they cannot provide evidence of professional stability, which can result in loss of earnings. This also applies to inadequate income or previous financial burdens that may endanger the repayment of a loan.
Return debits, bookings from debt collection agencies or an overdraft facility credit, which in most cases lead to the rejection of a loan application, give a bad impression of the applicant’s payment behavior.
The minimum age for the award of Good Finance is 18 years. This is the age limit specified by law for the commencement of legal capacity and the associated opportunity to enter into an effective contract. There are also limits upwards because due to an older age the repayment of Good Finance is not sufficiently guaranteed due to the higher mortality.
Tip: Make further credit inquiries
If you have made the first 1-2 credit inquiries, it is advisable to contact other banks. Each bank has different evaluation criteria. You can find an overview of the terms and providers in our loan comparison.
What to do if the loan application has been rejected?
Even if a loan application has been rejected, the applicant does not have to despair and remain inactive. In the first step, he should ask the bank concerned about the reasons for the rejection. Because only those who know the exact reasons can take countermeasures and look for serious alternatives.
The negative information from Credit Checker as a reason for rejection
If negative information from the Credit Checker is given as a reason for rejection, the applicant should request free information from the Credit Checker. If the consumer ascertains that there are unjustified entries and can prove this, the negative entries can be deleted.
After deletion, there is nothing standing in the way of a second loan application. If the entry is justified, the consumer should seek a conversation with the bank and inquire about other options for granting a loan. One is to provide a guarantee from a solvent guarantor who is fully prepared to pay the debtor’s debts.
Refusal of credit due to low income
A low income can also lead to rejection.
It also happens that a loan application is not approved due to low income. This also applies if the borrower is employed full-time and the income is still too low. Because the approval does not depend on the amount of the actual income but on that of the attachable income, which is currently just over 1,000 dollars.
The decisive factor is the income that the applicant actually has at his free disposal. For this purpose, the income is compared with the expenditure. This means that a loan application can also be rejected if the applicant has only a small residual income
Rejection of recipients of wage replacement benefits
The situation is similar for recipients of unemployment benefit I, Good Finance or recipients of sickness benefit or parental benefit, the benefits of which are not attachable as wage replacement benefits, even if it is a regular income. This means that most financial institutions do not approve loan applications, even if the amount of the wage replacement benefits would be mathematically sufficient for the loan to be repaid properly. In the above-mentioned situations – low income and wage replacement benefits – loan applications only have a chance to be approved if a solvent guarantor assumes the financial risks.
If there is no guarantor, a loan can also be taken out on existing life insurance, whereby a pawn shop is also a possible alternative. However, there are also financial institutions that make exceptions to this rule and award Good Finance despite a low income.