Loans With Bad Credit – Rejection Is No Mystery, There Are Reasons

It is only logical that when applying for a loan with bad credit, there is a chance that the application will be rejected. We know that there are always options, and the bad credit scores alone are not enough to rule out getting a loan. However, any rejection is based on sound reasons, and by knowing them, it is possible to know how best to avoid disappointment.

The simple fact of the matter is that there is set criteria which an applicant has to meet before a loan is approved. Therefore, any rejection of loans is based on not matching the criteria. We already know that lenders are willing to grant loans despite bad credit, so it is a matter of providing a convincing application.

This is where knowledge of the required criteria is of value to an applicant, helping them to know what is possible, what limit to the sum requested is most acceptable and what terms to expect. Here are some reasons why a loan application is rejected.

Credit Rating is Too Low

Logically, a bad credit rating should automatically qualify an applicant for a loan with bad credit, but it is not actually as straight forward as that. It is possible that a credit rating is simply too low for the lender to feel any confidence that the loan will be repaid. If a poor attitude towards repayment is indicated in credit histories, then rejection of loans is more likely the result.

Of course, failure to repay can sometimes be out of our hands, with perhaps a loss of a job or an unforeseen financial crisis the reason behind a default. It might also be that the score, though low, is an improvement on previous years, with a concerted effort to improve a rating evident in the credit history. In these cases, a lender might feel happier about approving a loan despite bad credit ratings.

No History

Strangely, having no credit history can actually be a negative thing. This is a problem that many first time loan applicants have, and while it may not be a factor when it comes to getting a loan with bad credit, since there is no credit history to rate as bad, there is an uncertainty over their ability to pay.

The best way around this issue is to seek a small, short term loan that can be easily repaid, thereby establishing a record quickly and without much pressure. Of course, even to get that kind of loan, it is necessary to have a bank account and a history of paying utility bills, at least.

It is important to remember that the rejection of loans is based on risk, nothing else. Therefore, convincing the lender to approve the loan, despite bad credit or no history, comes down to proving an ability to pay.

Proving Ability to Pay

This is the crux of the application for a loan with bad credit. And while a bank account and a history of paying bills both show an ability and tendency to pay, there is also the need to prove that this will remain the case in the future. Proof of income then is also important, which may lead to a lender asking for a salary slip, and a failure to do so is often the basis of a rejection of loans.

Collateral is also a very useful aspect of an application, with any security serving to ease lender fears. The fact that must be considered is that loans with bad credit, especially in these times of economic uncertainty, will be rejected unless the necessary criteria is met.