My application for a guarantor loan was declined. What now?

Overview

You found a guarantor, searched for the best lender, filled in the long-winded application form, only to be met with “computer says no”.

Of course, this can feel frustrating, but it’s far from game over for your loan hunt. We asked an expert from the UK’s leading provider of guarantor loans what steps you can take if you’ve been declined for a guarantor loan.

Find out why you were declined

Many of us simply see the word “declined” and then close the browser tab. But if you don’t identify where your application fell down, then there’s a good chance the same thing will happen with the next company you apply to. Submit multiple applications for credit in a short space of time, and you’re likely to start seeing damage to your credit score – which is probably the last thing you need.

Log in to your account with the lender that declined you to see if it’s offering any sort of explanation. Check your emails from the company. If they’ve given you nothing to go on, it’s often worth a phone call.

Crucially, our contact told us that in most cases it’s the guarantor that fails the lender’s checks, and not the applicant.

Unfortunately some companies simply won’t help when it comes to providing an explanation, so in these situations, you can fall back onto “best practice”.

What are guarantor lenders looking for?

• A sensible loan purpose. A lender will ask what you’re planning to spend the money on. If it’s just for regular expenses, you’re unlikely to get the green light. Legitimate one-off costs like a new car stand a decent chance, while holidays could fall into either camp. A one-off, long-haul trip to attend a family wedding abroad could be fine, but if it’s your regular summer holiday, a lender might be less likely to approve you – after all, are you planning to take out an expensive loan every year? There are a few obviously-reckless loan purposes that are a red flag to any lender: borrowing to put down a deposit against an even larger loan, borrowing to invest, or – worse still – borrowing to gamble.
• A guarantor with a good credit record. Most guarantor lenders don’t expect the applicant to have a glowing credit file, but they’ll need you to offer a guarantor that provides the reassurance they need in order to lend.
• An affordable loan. Lenders are only allowed to lend responsibly and, let’s be honest, they want to know they’ll get their money back. It’s crucial that your regular income and outgoings leave enough room for the loan repayments. The same goes for your guarantor: they’d need to be able to comfortably afford to take on the repayments if they had to.

Next steps

• Get a new guarantor. Since it’s usually the guarantor who fails affordability/credit checks, not the applicant, a good first step will often be to search for a more suitable guarantor. It’s highly recommended to apply with a guarantor who is a homeowner, as they’ll be most likely to have enough capital to pass a lender’s checks (and could even help you bag a better rate). Around two thirds of the guarantors approved by the lender we spoke to were the applicant’s parent, while less than 10% of successful applicants used a partner. Don’t forget that a partner is likely to be very closely financially-tied to the applicant, when it might actually be safer (from the lender’s point of view) if the guarantor was financially separate. Our guide on who can be a guarantor will help you select someone suitable.
• Consider applying for a smaller loan. The more you apply to borrow, the stricter your lender’s affordability checks will be. Explore options that will allow you to borrow a smaller amount of money.
• Consider applying for a shorter loan. Longer loan terms may be more affordable, but lenders can see these as riskier, because there’s a longer period for you to potentially default.
• Work on your credit file. Your credit score is a numerical indicator of your reliability when it comes to borrowing money. The higher your score, the more likely you’ll be approved for a loan. You can boost your score my making debt and bill repayments on time, while ensuring you never go over any agreed credit limits on bank accounts or credit cards.
• Consider using a loan matching service. These services allow you to get pre-approved by multiple lenders through a single application form and a “soft” search of your credit file (that’s a search which doesn’t leave a footprint visible to other lenders, and which doesn’t hurt your credit score).
• Prepare your guarantor. It’s likely they’ll receive a phone call from your lender. Guarantor loans can involve a bit more human underwriting than more traditional loans (which might be approved or rejected through an algorithm).

Bottom line

If you’ve been declined for a guarantor loan, it’s important to find out exactly why your application wasn’t approved so that you can hopefully avoid the same thing happening again, next time around. Too many decline applications in a short space of time can really harm your credit score.

A contact from one of the UK’s biggest guarantor lenders told us that it’s more often the guarantor that fails the lender’s criteria rather than the applicant.

Consider what your next steps should be with the help of our list above. Whether it’s finding a new guarantor, improving your credit score or applying for a smaller loan, it’s worth taking some time to review your options before applying again.

Frequently asked questions

• Can you borrow more if you have a guarantor?

  A guarantor provides extra security on a loan, which typically makes lenders feel more comfortable approving larger loans, especially if you have bad credit.

• Does being rejected for a loan affect my credit rating?

  Whenever you apply for a loan, you’ll be credit checked and this will have a slight (and usually short-lived) negative impact on your credit score. As such, each application will make it slightly harder to be approved in the future. That’s why it can be worth considering a loan matching service.

• How long should I wait to reapply after a rejected loan?

  It’s often recommended to wait for a few weeks before reapplying for a loan after a rejection. This gives a little time for your credit score to recuperate. However, if you feel confident of being approved in spite of your reduced score, you may not need to wait this long. A loan matching service could help you find companies willing to lend to you, based on a soft search of your credit file.

• How is the guarantor affected?

  Provided you keep up with your payments, your guarantor’s credit score will not be affected. Realistically, their borrowing power could be reduced during the term of the loan because they would need to be able to take on your loan at any time.