Why is a Loan Refused?
Whilst we strive to lend to our members, it is not always possible to approve all loans. This is because not all loan applications meet the lending criteria set out in our Credit Policy. We understand this can be distressing for members.
- Capacity to repay - guided by Debt to Income Ratio and disposable income, both now and for the duration of the loan
- Credit rating as outlined in a Credit Report Check - CCR. Write offs, settlements and arrears will be taken into consideration as part of the lending decision. Mortgage arrears will require Central Bank guidance to be followed.
- Financial status to repay all Credit Cards and overdrafts used are taken into account as part of debt. Excessive debt levels on self employed accounts will be taken into account also as may income levels sufficient to pay a living wage. Self Employed accounts will be assessed for profitability over time and sustainability for drawings.
- Income stability & diversity - including length of time in employment, sources of income, sector stability and permanency of income will be assessed. Connected borrowers, where more than one party is dependent on one source of income will be taken into account as part of loans approval. Length of time employer is in operation will also be factored in and extra checks may be run in this regard or if income sources are overseas.
- Lifestyle Spending - large withdrawals not included in Credit Report checks will be queried. Evidence of lifestyle spending from bank statements / credit cards, e.g. gambling will be taken into account in loans assessment. Declined Standing Orders will also form part of the lending decision.
- Lending History with the Credit Union - arrears on past loans will be taken into account in the lending decision.
- Security offered - savings can be used as collateral against the loan and will play a part of the lending decision and guarantors can also be requested. Generally 10% of the value of the loan is sought.
- Loans may be stress tested
- Top Up lending will be assessed for sufficient repayment on prior loans. Repayment amounts may have to increase with each subsequent loan or a top up may be refused or deferred to a future date. Top up lending is reviewed to ensure excessive core debt level is not building up.
- Evidence of all income sources must be provided and evidence of debt and contracts of employment may be requested. Where there is variability of income exists you may be requested to provide more than one P60.
- Purpose of the loan is part of the lending assessment and evidence of purpose may be requested. Additionally terms requiring payment to third parties may be stipulated.
- Amounts requested in loan applications must be reasonable in relation to existing borrowing and in line with income levels.
If a loan is refused it does not mean this is a permanent refusal but applications may be successful if your situation improves at a future date or if the reason(s) for declining the loan can be addressed. Sometimes loans are deferred to a future date e.g. with Top Up applications it may be that existing levels of borrowing need to be paid down further.
Where loans have been turned down by Loans Officers, they can be appealed to the Board of Directors.
This appeal must be:
- Considered by a majority of Directors on the Board of Directors
- Any Directors previously involved in the decision will be excluded from this number
- Loan refusal can only be overturned by the majority of those present
- The Directors will consider whether the loan has met the lending criteria of the Credit Union
- Loan appeals must be dealt with as above under law and are separate to the Complaints Policy
- Loans officers or anyone involved in the original loan assessment will not be included in decisions on whether to overturn a loan refusal or not.