If you are looking to apply for a secured loan, it is important to know that there is a possibility that you may be rejected and if you know the reasons for that, you may be able to prevent it. You may have already applied for a secured loan only to be declined, but are unaware of why this has happened.

In this guide, for your clarity, we are going to look at some of the reasons that you may be declined for an application on a secured loan. But first, let’s look at what a secured loan actually is.

What is a secured loan?

A secured loan can also be referred to as a homeowner loan because a secured loan has the debt associated with it linked (or ‘secured’) to the loan borrower’s property. Secured loans, thus, are only available to be taken out by people who already own or are buying their own homes. A secured loan can be used to borrow anything from the £5,000 mark and upwards.

With a secured loan, the amount you are entitled to borrow, the duration of the loan agreement and the amount of interest which will be offered is wholly dependent on personal circumstances and the amount of free equity which you have in your property.

But if you do qualify as a homeowner, why might you be rejected by a lender for a secured loan?

Poor Credit History

Like with any type of monetary lending, your credit score can make or break your chances of borrowing or can affect the kind of deal available to you. You can read more about your credit score here.

If you have a history of missing payments or failing to repay your previous loans or on your credit card, this can seriously damage your credit history and thus, make you look like more of a risk to a lender.

If this is the case for you, there are things that you can do to improve your credit score including:

  • Always paying your credit card statement in full, each month
  • Only applying for loans when you need them – too many credit search footprints on your file could decrease your credit score
  • Always pay back loans in full, with the interest

Have Made Applications For Payday Loans

Some secured lenders consider payday loans to be a very high risk financial solution and means that you might have been desperate for funds. Not all secured lenders view it this way. One major mortgage provider recently said that payday loans (Source: MY JAR) were fine provided that they were paid off on time. Some providers will not consider it an issue if it was several years ago. Other similar high-cost credit products include cash advances, pawnbrokers and logbook loans.

A Spouse with Poor Credit History

You may have a good credit score, but in actual fact, your legal spouse’s credit history may be your downfall when applying for a secured loan. Seeing as marriage ties you in more ways than one, one way is being financially linked, you are seen as a risk if your husband or wife does not have a good credit history attached to their name.

Especially with secured loans, since they are for homeowners, it is assumed that you help either out financially and that the mortgage and so on will be a mutual responsibly.

Your Collateral is Not Valuable Enough

The collateral that you have to offer in order to secure it against the loan may not be seen as valuable enough to the lender. To them, if your collateral is of less value, it is more of a risk lending to you as they will not get their payment back if you fail to pay it.

For a secured loan, your collateral could be your property or a car, for example. If neither of these is deemed valuable enough, your loan request may be denied.

In a similar way, you may only have little equity on your house at the point of application. Basically, what this means is that you do not own enough of the property to gain a secured loan.

How Much Are You Asking For?

Depending on your needs, you may find that you are needing to borrow a little amount or a larger amount. It is true that the amount you are wanting to borrow can play a part in the lender’s decision on whether or not to grant you a secured loan.

What Are You Planning on Using The Secured Loan For?

Likewise, a secured lender may refuse you based on the reasoning behind your loan. Many lenders will ask you this question as part of the underwriting process and if it is something they deem unfit, they simply will not grant you a secured loan.

Bridging loans

You may find that you are struggling to get a mortgage in place and time is running out before you lose out on a property which you are hoping to purchase. An option for you might be a bridging loan.

Essentially, a bridging loan is a type of short-term finance which aid you in ‘bridging the gap’ between you and the mortgage, allowing you obtain the property without a mortgage in place prior. Rather than losing a potential property, you can apply for a bridging loan and receive the money in one lump within a few working days. Once the property has been purchased and has access to more finance, you will be required to repay the loan.