Reasons you might be declined for a secured loan

Nov 20, 2019

Knowledge Hub / Reasons you might be declined for a secured loan

Why might I be refused for a secured loan?

  • Your credit score
  • If your partner has a poor credit history
  • Too many failed loan applications on file
  • Lack of high-value possession as collateral for loan

Things such as your credit score or your partner’s poor credit score and too many other loan applications on file could all lead to you being declined. These can indicate to the lender that you pose a higher level of risk to lend to, which means a lower chance of them receiving the money back.

This is why you should always check the secured loan criteria before applying, to make sure that you are likely to meet it and be accepted for the loan. Otherwise, too many failed loan applications on file can make it difficult to get credit in the future, as responsible lending is important to lenders.

Additionally knowing the main reasons why a secured loan application may be declined can allow you to adequately prepare before, and increase your chances of being approved.

What is a secured loan?

When you take out a secured loan, you are required to pledge a high-value asset that acts as collateral for the loan, if you default on payments.

Otherwise, until the loan has been paid off, it is possible for you to keep physical control of the property or vehicle that has been used as security for the loan. However, the lender has the right legally to repossess these items should you end up not repaying the loan.

Having a bad credit score

A common reason why secured loan applications are declined is due to the applicant having a bad credit score. This applies to almost any type of loan unless specifically aimed at those with bad credit.

Having a poor credit history greatly reduces your chance of being accepted for a secured loan. If you are accepted, you may find yourself having to pay a higher level of interest than you would otherwise.

This is because the lender may see you as lacking ‘creditworthiness’. This means that you have not demonstrated through your credit history your ability to handle credit effectively.




Ways to improve your credit score

You are in control of improving your credit score: it is not something that remains static. Ways to improve your credit score and therefore your chances of being accepted for a loan include:

  • Pay back any outstanding loans you have in full and on time.
  • Close any unused bank accounts
  • Do not make too many loan application in a short space o time
  • Pay your credit card statement in full each month if it is possible
  • Make sure you are on the electoral register
  • Check your credit report quarterly for potential inaccuracies

Your partner’s credit score

It is possible that it is not yours but your spouse’s poor credit history that is leading to a secured loan refusal, as you are financially linked. To a lender, this may mean that you are both considered as a risk, and you are mutually responsible.

Consequently, you should make sure that if you are financially linked with a partner that both your finances are in good working order before applying. Alternatively, if you are still financially linked to someone you are no longer with, you should contact relevant creditors to inform them to remove financial links.

Low-value items as security

You may be refused for a secured loan if the item as collateral is considered not valuable enough. This is important, as the collateral possession will be the item that is used to retrieve money back if you are unable to pay.

As a result, if your car or property (most common high-value possessions used as security for this type of loan) is considered of less value than the loan amount, you may be declined.


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