Fear of rejection putting off millions of borrowers

Millions of people in the UK are being put off accessing credit products because they fear a rejected application could harm their chances of a loan in the future, according to new analysis from Freedom Finance, one of the UK’s leading online consumer lending platforms.

The research shows that more than one in 10 (11%) of those who held at least one consumer credit product in the last 12 months had been put off by the ‘fear of rejection’. This anxiety rises among potentially vulnerable groups, as those who are struggling financially (low resilience – 42%), find it difficult to choose the most suitable financial products (low capability – 17%) or may have lost a job or be struggling with relationship problems (negative life event – 18%) are more affected than most.

Over half (58%) feared the impact of a rejected application with 46% saying it could damage their credit score and a third (32%) saying it could have affected their chances of applying to that provider in the future. While many (48%) simply felt that there was no point in applying.

In many cases those fears would have been misplaced as soft credit searches mean that people can check whether they are likely to be eligible for a loan without the damage of a declined application on their credit file. There are also positive steps people who think their poor credit record means they cannot access a mainstream loan can take – such as registering on the electoral roll – set out in Freedom Finance’s Credit Score Guides.

The analysis also revealed that 7% of people had seen a credit application rejected over the past 12 months. The most vulnerable2 were again most likely to miss out as 14% of people with low financial capability, 29% with low financial resilience and over 11% who had suffered from negative life events, all suffered loan rejections.

As a result, over a tenth (12%) said they had sold something to get by instead of applying for a loan or as result of rejection, while one in seven (14%) borrowed from a family or friend and 5% defaulted on another bill, loan or repayment agreement.

David Hendry, Chief Marketing Officer, at Freedom Finance, said it was up to the industry to make sure that everybody was able to access borrowing products, “The findings show that there are a huge number of people struggling to access the credit markets, and for many the application is a daunting process.”

“This is particularly true for people with thin credit files – often through no fault of their own, with circumstances like divorce or living abroad factored in – or with low financial capability. It is vital however that the financial services industry does not pull up the ladder and abandon these people to loan sharks and unregulated lenders.”

“Credit plays a vital role for many people and used in an appropriate way can help reduce expensive, drawn-out debt or to improve their wider financial wellbeing.”

“Technology allows people to apply for credit with the confidence that they will be eligible for that product, but we have to make sure everyone is able to access the right tools. The industry and regulator needs to make sure that we are taking a holistic view of individuals’ credit profile through open banking, and not blocking people from loans unnecessarily.”

Q. What put you off applying?
There was no point in applying	It could have affected my chances of applying to that provider in future	It could have affected my chances of getting credit elsewhere	It could have damaged my credit rating	I was unlikely to be accepted based on information from the lender or price comparison website	NET: Concern about impact
48%	32%	30%	46%	28%	58%
Base: All UK adults holding one or more consumer credit or loan products now or in the last 12 months who been put off applying for credit, because they thought their application would be rejected