You might be unsure of where to look next and worried about how to pay your bills, but just trying to get a different loan is likely to make things worse. A cycle of applications and rejections will have a negative impact on your credit rating and could mean it is much more difficult for you to borrow in the future.
The first step you should take is to find out from the lender which service they used to run a credit check on you, in case there has been an error. The UK’s major credit reference agencies are Equifax, Experian and TransUnion. You should then contact the credit reference agency to make sure the information they have on you is correct and up to date. If there is a mistake, they have 28 days to investigate and rectify it.
You should also add your name to the electoral roll and pay any outstanding bills if you haven’t already, as this will improve your credit score.
There are many reasons you could have been rejected, from a history of missed payments to an innocent misspelling of your name. You could also be rejected due to not having any credit history at all, or having bad credit.
Once you have rectified any errors in your credit history and improved your credit score, you can start to look at what other lending options are available to you.
If you are rejected for a loan but are still looking to borrow, there are a few options available to you.
You may be able to get a credit card for bad credit, even if you have been rejected for a loan. You could use this to spread the cost of large purchases, short-term borrowing or to help rebuild your credit score.
If you’re using the card to spread the cost of a large purchase, make sure you have a plan to pay the card off as soon as is realistic – making at least the minimum payment each month – as the longer you are in debt the more expensive cards become.
If you are using the card to boost your credit rating, make sure you only spend what you can afford to pay off the balance in full at the end of each month.
In both cases, setting up an automated system will make it easier – either a standing order for a set amount, or a direct debit to clear the balance in full.
If you have a current account, you may be able to arrange an overdraft with your bank. Be aware that though banks cannot charge daily fees anymore, interest rates may be high – with most charging about 40% as things stand.
Check with your bank first before you go into your overdraft, and try to clear it as soon as possible to keep interest charges to a minimum.
Credit unions are non-profit financial organisations. Their memberships usually consist of a group of people who live in the same area, work in the same industry or have something else in common.
The members of the credit union pool their savings to loan out to other members, usually at lower than market interest rates. This makes them a healthy alternative to other short-term lenders.
To access a loan, it is likely you will need to join the credit union. You may also need to save with them for a period of time (six months for example) before you can borrow any money.
To find a credit union in your area, search the Association of British Credit Unions website.
Payday loans quite rightly have a terrible reputation. Their interest rates are so high that borrowers who do not meet repayments can very easily be pushed into a ruinous spiral of debt. Despite negative publicity, some of these companies continue to target people who are unemployed, claiming benefits or otherwise struggling financially. It is usually the most expensive type of borrowing you can get.
Home credit or ‘doorstep’ loans are also extremely expensive. They are repaid in instalments handed to a representative of the lender who comes to your address each week. A debt collector knocking on your door every week is likely to be a stressful experience, so it's best to avoid these loans.
Store credit/finance is frequently offered to people at the point of sale, but can mean you end up spending far more for something than the advertised price once interest is factored in. It allows you to purchase items with credit and pay them off in instalments, but if you are not able to make these repayments the items could be repossessed in some schemes, while your credit score could be hit and you will have to pay fees in others.
If you have been rejected for a loan because you’re in financial difficulties, there are a few things you should do before applying for more credit.
Create a budget to work out if you can cut down on any spending. By breaking down your outgoings, you should be able to see how much you are spending on purchases you don’t need or are overpaying for.
Get in touch with your energy, broadband, water and other utility providers to see what schemes they have in place for customers who are in arrears or struggling to pay their bills. You may be able to spread your payments over a longer period of time, reduce your monthly bills or move to a more suitable tariff.
Talk to your mortgage provider to see if you can take a payment holiday, or even remortgage. You may even be eligible for the government’s support for mortgage interest programme (SMI).
Look for free money advice from organisations such as Citizens Advice, StepChange Debt Charity, National Debtline, PayPlan and Shelter. They can help you get a handle on your financial situation and show you what help is available.
You should also check to see what benefits you are eligible for. Even if you are employed, you may be able to get financial support. If you are struggling to buy essentials, you could be eligible for a government budgeting loan or universal credit advance payment.
The universal credit advance is an interest-free advance of universal credit payments. It can be used to meet the cost of food, clothes, rent and other household essentials. You repay the advance out of any future universal credit payments you receive, usually over the course of two years. You can find out more about how to apply here.
Budgeting loans work in a similar way and are also interest free. You will need to have been claiming benefits such as income support, income-based jobseeker’s allowance, income-related employment and support allowance, or pension credit for six months to be eligible. Like the universal credit advance, repayments will be deducted from your future benefit payments over the next two years.
If you need to borrow to help meet mortgage repayments, you could be eligible for the government’s support for mortgage interest programme (SMI).