A loan rejection is very disappointing at first, as there were many hopes associated with the loan request. There are many different reasons why the loan was rejected, often due to a lack of prerequisites. Banks are not obliged to give these reasons.
However, the rejection does not automatically mean that in principle no installment loan is available, just not from the requested bank or banks. It is important for the applicant to review their own credit requirements again in order to make a new request with greater chances. The most common reasons for rejection and measures that may still make it possible to lend are explained below.
Why was my loan declined?
Reasons for loan rejection are usually based on the fact that one or more basic requirements and conditions for the loan granted by the requested institution were not met. This includes, for example, age, employment relationship, credit rating. The significant features that can lead to rejection are listed here.
If the borrower is too old or too young, a rejection is inevitable. The minimum age for borrowing is regulated by law. The applicant must be over the age of 18, i.e. of legal age. Lending to minors is not permitted. The maximum age depends on the individual criteria of the bank. Some credit institutions do not limit their age, others limit borrowing to people who are under 70 years of age. However, there is no binding regulation here, which is why the relevant banking conditions are always decisive. In particular, the age restriction for older borrowers is by no means a will of the bank, but a protective measure for both parties. It is in the interest of both the bank and the borrower to have the loan repaid. In addition, overindebtedness is to be prevented in old age.
Many German banks that offer loans require the employer to be based in Germany. This prerequisite is based on the fact that wage or salary assignment is often required as security for the loan. If the employer is based abroad, the money may sometimes be difficult to collect and subject to other legal requirements.
Fixed-term employment contract
The majority of lending banks do not recognize a temporary employment contract. The time limit is very variable, it can range from three months to two years. The problem with time limits is that the period in which a secured income is drawn is not compatible with the loan term. The term of a loan must be at least one or two years for the majority of providers. There is a very high degree of uncertainty here, which is why fixed-term contracts are excluded from the outset. If you still want to get a loan with a time limit, you should look for bank offers with very short terms. The term may not exceed the time limit. If it is the same as the time limit, the problem-free repayment must be guaranteed within the time limit.
A trial period is also one of the exclusion criteria for lending. In Germany, the maximum trial period is six months. During this time, employees and salaried employees receive a fixed remuneration that is paid monthly. However, there is also the problem here that the terms for loan agreements must be at least one or two years; for small loans, the minimum term can be reduced to six months.
Bad credit rating
Several credit inquiries have already failed due to the creditworthiness. Negative Credit Bureau entries are consistently a reason for rejection at German banks. They are highly informative regarding the payment behavior of the borrower. This does not only refer to loans, but generally to outstanding invoices and receivables. If the debtor fails to meet his payment obligations, he risks a negative Credit Bureau entry. A serious Credit Bureau-free loan can help here. Furthermore, loans terminated by a bank, personal bankruptcy or arrest warrant lead to negative entries.
Even if Credit Bureau is one of the major credit bureaus for credit checks, it is far from being the only one in Germany. Depending on the bank, other credit agencies are interviewed. Which of these is usually shown in the information provided by the provider. Banks often create their own credit scores based on the information provided by the credit bureaus, information on the applicant’s income and assets and other bank-related characteristics and priorities.
The higher the credit score, also according to the bank’s criteria, the higher the chances of getting a loan. Good to excellent creditworthiness is achieved through the punctual and reliable payment of liabilities and the fewest possible loans with low loan amounts. Many loans, high credit burdens despite a comparably low income and recurring payment difficulties push the credit rating down sharply and often prevent new borrowing.
Overdraft facility exhausted
If the account is in the red, this can have an unfavorable effect on the loan approval, particularly if the overdraft is permanent. Because the bank statements of the past few months can give the bank an idea. The overdraft facility is also a loan, to be precise, a credit line. As long as it is not completely exhausted, it can always be used up to the limit. The conclusions drawn by credit institutions from a permanently overdrafted current account on the handling of borrowed money are not exactly positive. Anyone who is always in disposition does not ensure the necessary compensation and takes things too lightly. However, responsible handling of liabilities is important for the lending bank. Therefore, the tip: use the overdraft facility for as short a time as possible and ensure that you make a full settlement in good time, at least three months in advance, before making a loan request.
Return debits on bank statements
Return debits, which can be seen on the submitted bank statements, are interpreted negatively to the applicant in case of doubt. On the one hand, the applicant may have arranged this himself because the debits were made incorrectly, on the other hand, contractually agreed direct debits may have been returned by the executing bank due to insufficient funds in the account. The second option, which is much more common in practice, signals to the potential lender that there are financial problems. If the first variant applies, this should definitely be noted on the account statement or explained to the credit bank.
Debiting of debt collection companies on the bank statement
If debtors fail to meet their payment obligations, the creditor can commission the collection of the money through a debt collection agency. If such amounts appear on the bank account statements, it can be seen that the borrower did not take his payment obligations very seriously in the past. This has well-founded doubts about the creditworthiness and can be a reason for rejection.
With the so-called parental leave, as unpaid professional time-out or part-time option for full-time employees for the purpose of bringing up children, banks have a hard time and therefore usually exclude people on parental leave as borrowers. No credit-related income flows during this time. Even if both parents make the application together and one of them earns a full income from work, the loan can be refused if the income is too low.
What to do if the loan is declined?
Putting your head in the sand is certainly not the right solution. Because there are some ways to get the desired credit with a bit of luck and understanding. The following options show what you can do now.
Talk to the lender
The requested loan with the selected bank was rejected, no reason was given. The applicant should ask the reason for rejection in a friendly manner, even if it initially requires overcoming. In the best case, he will receive specific information as to why the lending has failed and can act accordingly. Sometimes a solution that can be implemented quickly can be found together with the bank advisor. In fact, sometimes it can only be little things that need to be clarified in a conversation. If the reason cannot be found out, check off and tackle the next options.
Request Credit Bureau self-disclosure
It is generally recommended to obtain self-disclosure from Credit Bureau at regular intervals in order to gain a well-founded overview and certainty about your own credit status. This clears a lot of uncertainties in advance and you can quickly deal with incorrect or outdated entries. The self-disclosure is to be requested online or in writing. Interested parties can register on the Credit Bureau website and order a self-assessment online. A distinction is made between the chargeable services and the free copy of the personal data (according to Art. 15 GDPR). The copy of the personal data contains all the personal data stored at Credit Bureau. This information sheet is sufficient for an initial credit assessment and control. If incorrect or outdated data is discovered, incorrect entries should be deleted. This works on request, more information can be found on the Credit Bureau website.
Creditworthiness is not only important in order to get a loan at all, it also plays a major role in interest costs, which is often dependent on creditworthiness. Thus, the loan can become very cheap with a very good credit rating, while with a medium credit rating it tends to be expensive.
Inquire at another bank
The supply of loans is more diverse than ever thanks to the majority of direct banks. It is therefore worth asking about other institutes in question. Trying again can pay off if the new application is carefully considered. It has to be checked whether all requirements and conditions can be met, a Credit Bureau self-disclosure provides information about the stored data and your own credit rating. Fine-tuning the credit parameters such as loan amount, duration and rate can also increase the credit opportunities. Income and expenses must be calculated with great care in order to be able to provide correct and reliable information. A loan comparison is always a good idea.
Apply for a loan with a guarantor
If your own income is not high enough for the desired loan or the creditworthiness shows some blemishes, a co-applicant can compensate for the insufficient conditions, provided that he fulfills the conditions one hundred percent. All banks offer this possibility, although this is not always explicitly emphasized in the general information. A guarantor can also be proposed to the bank that refused the loan. Any adult and legal person who has a fixed income from a permanent employment contract and a good credit rating is eligible as a guarantor.
Alternatives in the event of a loan cancellation by several banks
Anyone who has made several attempts at various banks that ended with a rejection of the loan can imagine that the rabbit is deeper here. As a rule, no loan is then available through the typical banking route. For these “more difficult” cases, there is still a glimmer of hope.
Credit marketplaces for private loans
The Internet has opened up a great opportunity for everyone who generally has a difficult time getting a loan from banks. These include low earners, the self-employed, freelancers, retirees, people with a low credit score and some others. Credit marketplaces like Auxmoney, Smava and Lendico are the top dogs that promise light on the horizon. Here, loans are realized from private to private, with a bank in between, which is responsible for processing the loan business and making payments. It is characteristic of this system, however, that private lenders provide money and can therefore decide for themselves in which loan projects they want to invest. In contrast to the profit-oriented banks, the focus here is on personal components such as help in difficult situations. The creditworthiness is not left out, but the criteria are less strict.
Lend life insurance
Life insurance is reluctantly affected. However, if there is no way to get a conventional loan, mortgaging life insurance can show a way out. To do this, a loan is taken out on the life insurance in the amount required. Life insurance then serves as security. This “mortgage loan” can be applied for from the insurance company itself, alternatively also from a building society, a bank or specialized financial service providers. Here a comparison of offers can favor the right decision.
The maximum loan amount is based on the surrender value of the life insurance. This is the sum that the insured would receive if the life insurance policy were terminated. A prerequisite for a loan is that it is a life insurance that runs for several years and insists on the credit.
The advantages of mortgage lending are obvious. The old-age provision remains intact, and life insurance does not have to be terminated in order to receive the money. This policy loan is also available if the credit rating is poor. The life insurance loan is not recorded in the Credit Bureau. There is no prepayment penalty for early repayment.
The pawnbroker has been known as an option for a short-term loan since the early Middle Ages. Every major city has pawn shops where you can lend valuables. The principle is very simple and straightforward. Anyone who owns a moveable object of value, but is reluctant to sell it, can take it to the pawnbroker. This estimates the possible sales value and pays the “pledger” between 25 and 50 percent of the sales value. The pawn loan pays interest for the duration of the pawnshop, for amounts up to 300 USD, for example, interest of 1% accrues, which is also regulated by law. Furthermore, monthly fees are charged between 2.50 and 6.50 USD depending on the deposit value.
However, this type of loan only works for a short period of time, usually three months. The contract can be extended in writing, but not unlimited. If the item is not released, the pawnbroker is entitled to auction the item or sell it in his shop. If he achieves a higher than the estimated sales price, the difference is paid to the pledger. Basically, only items that are actually worth a consideration and are easy to sell are suitable for pledging. These include, for example, real gold jewelry, antiques, designer furniture and high-priced technology.
The pawnshop is a good option if short-term, quick and unbureaucratic money is needed, because the repayment has a tight window. The pledger’s creditworthiness is irrelevant, only the identity card has to be presented.
Loan rejection despite positive Credit Bureau, how is that possible?
Some people no longer understand the world if, despite positive Credit Bureau self-disclosure, a loan cancellation flaps into their home. This is also possible because, as already mentioned, the individual scoring of the bank, which is made up of many individual components, ultimately decides. Which of these exactly remains the secret of the bank. In addition to the credit scores of credit agencies, information on income, the profession exercised, the financial position of the borrower as well as the evaluation of account statements and existing liabilities are included. The result of the Credit Bureau query is equally important insofar as the exact examination of loan applications usually only takes place after the data has been called up. If the result is inadequate or there are negative entries, the check is sometimes unnecessary and the loan is rejected directly.
The loan was rejected despite the guarantor. What can I do?
Guarantors and co-applicants should still make the car loan possible if their own requirements are insufficient. If a guarantor has now been found, but the loan has still not been approved, perplexity spreads. Without asking the bank concerned, it can only be assumed that the guarantor also did not meet all the requirements. Either the income was too low, the guarantor too old, the credit rating was mediocre. Speculation helps little. In general, a guarantor only makes sense if it optimally meets the requirements in all respects, because it is supposed to compensate for a deficiency and ensure otherwise unsafe repayment.
Is a loan refusal recorded in the Credit Bureau?
A loan refusal is not explicitly noted in the Credit Bureau, but it can be visible to other banks. It is crucial here whether a request for credit or a request for loan terms has been made. A credit request is stored in the borrower’s Credit Bureau, is visible to other credit institutions for ten days after entry and has a negative impact on the credit rating for one year. A rejection is thus indirectly recognizable. The situation is different with an inquiry about loan terms. The credit conditions request is also noted in the Credit Bureau, but is not visible to third parties and has no negative impact on the score. Anyone applying for a loan should therefore always make sure in advance that a credit check is carried out under the premise of credit terms. Credit Bureau’s self-assessment helps to assess its own creditworthiness and shows all entries. If the entries are incorrect or incorrect, you can react accordingly. Therefore, the self-disclosure should always be obtained before a loan request.