How does bad credit affect car loans
What to do if the loan is declined How to react correctly!
Credit Denied - Who Is This Article For?
Those who submit a loan application often need the money promptly. Be it for a new purchase, to bridge a financial bottleneck or to finance a car. The timing of a loan rejection is always unfavorable because valuable time is lost to find out why the loan was declined and because a new loan application has to be submitted. We would like to save you this inconvenience and help you to get a fast, but above all serious installment loan.
This article is particularly 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'll show you what the most common reasons for loan rejection are. On the basis of this, you can then check in advance whether your loan request is approved or if everything can be done so that a loan approval is given.
- We will show you how to react correctly to a loan rejection, what to do to get the loan approved and what alternatives you have.
Why do banks refuse loans?
If the bank declines a loan, this is not done arbitrarily, but for its own protection. When granting a loan, the bank first checks the applicant's creditworthiness. Legal requirements and general terms and conditions of the credit institute serve as the basis. If the applicant's solvency is considered uncertain because there is a negative SCHUFA entry or because the creditworthiness is insufficient, the loan will be rejected. Because the bank assumes that the applicant cannot repay the loan as planned. In order to protect yourself from the damage caused by default, the loan request is therefore rejected.
Would you like to prove your creditworthiness with a SCHUFA credit report? You can order the credit check online here. It will be available to you after just a few minutes.SCHUFA credit check
The 10 most common reasons for a loan denial
However, with a little preparation and planning, many of the reasons that lead to loan rejection can be avoided. We have put together for you the 10 most common reasons why a loan is rejected. In this way, you can prevent unnecessary errors in the loan application and increase the chance of a loan approval.
10 Reasons Your Loan Will Be Denied
- You are still in the trial period
- You are in a fixed-term employment contract
- You have been self-employed for less than 3 years
- Your income is too low and not in proportion to the loan amount
- There is a bad credit rating due to negative SCHUFA entries
- Open return debits are noted on your account statements
- Bookings from debt collection agencies are available
- You have overdrawn your credit line
- Current loans and leasing installments were not specified in the application
- You are over the maximum age
What to do so that the loan is not refused?
Do you have one or more of the 10 most common reasons for a loan denial? In this case, keep calm! There is a solution to many of these points. A loan approval is therefore not excluded. The following tips will increase your chances of getting a loan.
The starting point: The request for a loan is almost always rejected if there is a fixed-term employment relationship.
The reason for the loan refusal: Banks require collateral to be able 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 application. The situation is similar with the self-employed. If you've been self-employed for less than 3 years, a loan denial 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 turn down self-employed loans.
The solution: Find a guarantor. In the case of a guarantee, a third person, e.g. your spouse or someone from the family, guarantees the loan. Put simply, this means that the surety agrees to repay the loan if you can no longer pay.
The starting point: 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 proportion to your income.
The reason for the loan refusal: If the loan amount you want to take out is not in proportion to your income, the loan will be refused. Although every bank judges differently how much credit you get, income and monthly expenses serve as the basis of the calculation. Basically, after deducting the running costs for rent and living, 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 beyond 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. Make sure you have enough collateral that the bank can fall back on in the event of insolvency. This can either be physical collateral, i.e. wealthy objects, real estate or vehicles, as well as personal collateral, as is the case with a guarantee.
The starting point: In the first step, the lender determines how likely it is that you will be able to repay the loan on time or pay bills in accordance with the contract. The lender receives all the necessary information about this from the protection association for general loan protection, better known as SCHUFA. Negative entries at SCHUFA have a detrimental effect on your loan request and, in the worst case, can lead to loan rejection.
The reason for the loan refusal: Based on the SCHUFA entries, the bank creates a forecast of your creditworthiness. The more negative SCHUFA entries you have, the worse your creditworthiness and the greater the risk that the loan will be rejected. Negative SCHUFA entries occur if you have already been canceled on a loan, if you have defaulted on the repayment of a loan or if there are entries about you in public debtor registers.
The solution: The SCHUFA entries are not always correct. By law, you have the opportunity to obtain a free SCHUFA self-assessment once a year. In this way you can check your data for correctness and, if necessary, request the deletion or correction of incorrect information. You can obtain the free self-assessment from meineschufa.de in accordance with Section 34 BDSG.
The starting point: People interested in credit keep forgetting to state their current credit lines and open bills when applying for a loan. If the bank learns of these or similar financial obligations through SCHUFA, your chances of getting the loan decrease. Therefore, the lender always requests a copy of the bank statements. Often retrospectively for the last 3 months.
The reason for the loan refusal: If return debits or postings from debt collection companies are noted on the bank statements, it is very likely that a loan will be rejected. Banks also do not like an overdrawn credit line. Your indebtedness is estimated to be too high and the loan is rejected.
The solution: You will not be granted a loan without proof of payroll and bank statements. Therefore, when submitting the application, be honest with yourself and the lender and show all open items that you have to pay monthly. As already mentioned above, this includes the overdraft facility, but also outstanding payments to mail order companies, the leasing contract and zero percent financing count as credit. This is the only way to increase the chance of a loan approval and avoid loan rejection. In doing so, you show the bank that you have nothing to hide. You can also request a rescheduling of all open items when applying for the loan. This means that you ask the bank whether all current loans can be rescheduled with a new and, above all, lower-interest loan. In this way, the bank knows exactly that you have an overview of your finances and want to reduce your debts.
The starting point: Loans are only granted at the age of majority, i.e. from the age of 18. In many cases, however, applicants also exceed the maximum age required 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 even 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 a loan is more difficult as you get older, but it is not impossible. Find out about the maximum age for lending from the various loan providers. Consider a residual debt insurance that protects 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 amount of time. Another way to prevent loan rejection 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 rate 4.24%, tied borrowing rate 4.16%, processing fee none, total amount € 11,543.68, OFINA loan, as of today
Are you looking for the right installment loan for you? Use our installment loan comparison and compare several loan offers.Compare lending rates
Credit declined despite positive SCHUFA! How come
In some cases, a loan is declined for none of the above reasons. Then it is difficult for you as a borrower to understand how the loan was rejected. Basically, the bank will tell you the reason for the loan rejection. But how does it come about that the bank, for example, rejects the loan despite a positive SCHUFA? Often the answer lies in the internal scoring of the respective bank.
Banks first determine the creditworthiness of an applicant with information from SCHUFA. In addition, each bank also has an internal scoring method that is used to create a risk profile for the applicant. This means that you will be assigned to a group of people based on the details you provided when submitting the loan application. The criteria for this group of people are very similar to yours, e.g. in terms of income, expenses, age or level of indebtedness. If this group of people has a good scoring, the loan is approved. If, on the other hand, you fall into a group of people who have difficulties repaying the loan, the loan will be refused.
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 SCHUFA score serves as basic information and is supplemented with the applicant's individual scoring criteria. The scoring criteria include:
Job: Here you can see what kind of employment you are in, i.e. unemployed, training, studying, but also whether you are a simple or managerial employee or a civil servant.
Salary and expenses: It looks at how much you earn as the applicant, how much expenses the people living in the household will have and how much will actually be left over at the end.
Location of residence: The so-called geoscoring is used to determine the creditworthiness of your street or residential area. If your neighbors are solvent, the loan is approved. If, on the other hand, they are highly indebted and the creditworthiness is negative, it is likely that your loan will be rejected. Data protection officers criticize this procedure because it violates the data protection law.
As you can see, lending depends on different criteria. Despite a positive SCHUFA and a good credit rating, the internal bank scoring can result in a loan being rejected. 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 rejects your loan without one of the 10 most common reasons, it is also important in this case: keep calm! Even if you are shocked and angry at first because you urgently need the money, you should not rush anything. Above all, stay away from loan sharks and loans without SCHUFA. In the following, we will show you how to react correctly to a loan refusal.
Loan declined - how to react correctly!
- Find the conversation with the lender
- Find a new lender
- Keep your hands off dubious offers
Basically, the bank will inform you why the loan application was rejected. If you do not do this, you should inquire about the reason for the rejection. Be sure to talk to the bank. Let them explain the reason for the rejection to you and ask what you need to do in order for the loan to be granted. If the loan approval remains futile, there is the option of a guarantee, as described above under the 10 reasons for loan rejection, or you have to submit a new loan application to another bank or lender.
If your loan refusal is due to the internal bank scoring and not, for example, to a negative SCHUFA, then the chances are good that you will get a loan from another lender. Because as already described, each bank determines its scoring individually. But don't act impulsively and over-supported now! Even if you need the money urgently, you shouldn't submit a loan application to any number of loan providers just because you believe it will increase your chances of getting a loan approval. Because every credit request with the note "Credit request" has a negative effect on your SCHUFA score and increases the possibility of a credit rejection.
Pay attention to the note “no negative SCHUFA entry will be created” or the note “request credit terms” with every credit request. In these cases, the bank only collects information about you to determine the conditions at SCHUFA and not a credit report, as is the case with "Inquiry for credit".
In our credit comparison, we have listed providers who carry out a "request for conditions" and thus do not trigger a negative SCHUFA entry. The credit provider must inform you whether a SCHUFA entry will be generated when you fill out the application form at the latest. If no notice is given, you should definitely ask for this information before submitting the loan request.
For many borrowers, a loan rejection is shocking because the money is urgently needed. Dubious providers adopt this and lure them with supposedly good loan offers. We recommend that you stay away from so-called loan sharks or loans without SCHUFA. Ultimately, such offers often turn out to be tempting offers, where you have to pay extra in the end and thus unnecessarily get into debt.
The disadvantages of loans without SCHUFA and loan sharks are, among other things, excessively high interest rates, so these providers protect themselves against the risk of loan default. In addition, there may be fees for the loan approval as well as costs for the dispatch of documents or a chargeable hotline and unnecessary additional products that are sold with the application. With dubious lenders, you always end up paying extra. There are only a 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 only a few serious alternatives.
Debt counseling as an alternative to loan rejection
If your loan application is rejected by several banks, there is probably a reason: You are heavily in debt and cannot afford to repay another loan. In this case, we advise you to contact a debt counselor. There are over 1,000 debt counseling centers across Germany. You can find a contact person in your area at the forum for debt counseling. You can also get advice from Caritas free of charge and online. A debt counseling service will help you organize your documents, get an overview of your finances and show you how you can reduce your debts. If you have a high level of debt, this is the best alternative that we can recommend.
Alternatively, private lenders help with loan denial
If you cannot get a loan from a bank, you can alternatively use private lenders such as auxmoney. This is a good alternative to the bank, especially for the self-employed, start-ups or older people. At auxmoney, private individuals lend each other money. This does not mean that everyone gets a loan. A credit check is also carried out here. However, the chances of getting a loan despite a negative SCHUFA are higher than with a classic bank.
The pawn shop, a possible way out in the event of a loan denial
If your loan is declined, going to the pawn shop is a possible alternative. If you hand in an item - this can be jewelry, a laptop, but also a car - you will be granted a loan. The pawnshop estimates the value of the item and pays you this sum within a few minutes. The pawn shop usually keeps the item safe for 3 months. If you can repay the borrowed money, plus fees and interest, to the pawn shop within the 3 months, the item becomes your property again. However, if you cannot raise the money during this time, the item will be auctioned.
If a loan is declined and no guarantor can be found, an ongoing life insurance can be deposited as security when taking out the loan. Therefore, think of all possible collateral that you could raise when making the self-assessment. This increases the chance of a loan approval and saves unnecessary hassle caused by a loan denial.
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