Loan declined: 10 most common reasons
Rejections are never pleasant, whether for a date, a job application or a loan application. It is particularly annoying when you urgently need the money and the loan is turned down. But there are clear reasons why banks reject applications. In this article, you will learn the most common reasons for a loan rejection and get tips on how you can improve your chances of approval.
1. General requirements or lack of creditworthiness
A rejection of your credit application may be due to the fact that the legal requirements are not met. According to the Swiss Consumer Credit Act, only persons of legal age who live in Switzerland or Liechtenstein or work as cross-border commuters can obtain a loan. You must also be able to prove that you can repay the loan with your disposable income within three years, even though in practice loans often run for longer periods.
2. Monthly budget too low
A rejection often occurs because your monthly budget is too low. Lenders check your budget to ensure that you can afford the loan costs in addition to your current expenses. This includes rent, lease agreements and alimony payments. If your budget is too tight to cover the monthly instalments, the loan application will be rejected.
3. Ongoing debt collection
A rejection can also be based on ongoing debt enforcement proceedings in the debt enforcement register. The bank checks your creditworthiness by looking at the debt collection register, among other things. An entry in the debt collection register indicates poor payment behaviour and can lead to the loan application being rejected, especially if there are several or current entries.
4. Negative ZEK entry
A rejection of your loan application can be caused by a negative entry in the ZEK (Central Office for Credit Information). The ZEK collects data on loans granted, applications and inability to pay. A negative entry in this database can greatly reduce your chances of being approved for a loan. The situation is similar with the German Schufa for people who have previously lived in Germany.
5. Probationary period in the job
A rejection is possible if you are still in the probationary period. During the probationary period, there is a high risk for the lender, as you can be dismissed at any time. This is why many banks reject loan applications during this phase.
6. Short-term self-employment
Your loan application may be rejected if you have only recently become self-employed. If you have only recently become self-employed, it is difficult to obtain a loan. A regular and secure income as well as a minimum duration of self-employment are usually prerequisites for the granting of a loan.
7. Pensioner status
Pensioners who apply for a loan can also be turned down. Pensioners often have difficulties getting loans. AHV funds cannot be seized, which means that the lender cannot access them in the event of a payment default. In addition, the risk of health problems or death increases with age, making repayment of the loan uncertain.
8. Social welfare or IV benefits
You will normally be refused if you receive social assistance or IV benefits. People who receive social assistance or IV benefits have no attachable income and are therefore considered to be unable to obtain credit. In principle, a
9. Other grounds for refusal
Your loan application may also be rejected without any obvious reasons. Possible influencing factors are residence status, age (especially for young adults), high monthly expenses, temporary employment or frequent changes of residence and job.
10. Consequences of a credit refusal
A rejection often has far-reaching consequences. A credit refusal is noted in the ZEK database and remains visible there for two years. This can have a negative impact on future loan applications, leasing contracts or credit card applications.
What to do after a loan rejection?
A rejection should not discourage you. If your loan application has been rejected, you should take the following steps:
- Check your creditworthiness: Request credit reports from Swiss credit agencies such as Crif, Intrum, Dun & Bradstreet or Creditreform.
- Adjust the loan request: Think about whether the requested loan amount corresponds to your financial possibilities and adjust it if necessary.
- Debt enforcements and ZEK entries: Have past (paid) debt enforcements deleted and check whether unjustified ZEK entries can be removed.
Preliminary clarification and mediation
A rejection is not the end of the possibilities. Have your profile assessed by a credit broker before you submit a new application. Intermediaries such as Credaris know the lenders' approval criteria and can put you in touch with the provider with whom you have the best chances.
Alternatives to the loan
A rejection can also open your eyes to alternatives. If a loan is not an option, you should contact a debt counselling centre. They can help you draw up a budget and negotiate with creditors to stabilise your financial situation.