The number of loan applications now done online has led to an increase in rejections and is harming applicants' credit rating, according to research.
A study by financial comparison website MoneyExpert.com suggests around one in three personal loans can now be approved with a quick online decision.
As a result, it suggests 1.4 million applications for personal loans have been turned down in the past six months – around 320 per hour.
The website says this may be fuelling the number of applications that are ultimately rejected, as applicants rely on online forms without either checking their credit status or speaking to an adviser.
Around 31 of the 89 possible loans on the market are available with an online decision.
MoneyExpert.com warns while money can be borrowed in a matter of minutes, lenders can also reject applications just as quickly, something which could affect applicants’ credit rating.
Sean Gardner, chief executive of MoneyExpert.com, says: “These days we’re all short of time and providers are keen to point out that they can offer you credit quickly.
“While saving time on your application may seem important, you have to weigh up what matters most – convenience or getting accepted.
“Loan providers are getting tough so applicants shouldn’t assume that, just because the loan is available online, acceptance is automatic. The same rigorous rules apply however you request credit and if you’re rejected too often it’ll be your credit rating that suffers.
“If time is short the best option is to use an online credit profiling tool to assess which products are best suited to your needs before you apply. This will reduce the risk of being rejected and doesn’t take long to complete.”
Around 80% of loans are now available through an initial internet enquiry, with little to choose between average rates across all application methods.
Gardner adds: “The worry is that people might be tempted to apply for more than one loan at a time as they know they’ll get their responses quickly on the internet.
“With providers refusing credit to 320 people every hour, there’s clearly a need for funds out there from people with less than perfect credit records.”
The website says there are alternatives to unsecured loans, such as homeowner loans, and says people should contact the Citizens Advice Bureau if their situation is acute.
Providers that will give an online decision, often emailing a response direct to applicants within minutes, include the AA, Intelligent Finance, Natwest and Smile.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Scott Sinclair on 020 7034 2636 or email [email protected].IFAonline
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