What do Lenders look at when Considering you for a Loan?
If you are currently thinking of taking out a loan, then you need to know what lenders look at before making their decision. While it would be nice to simply access the money that you need with no questions asked, no lender will actually do this.
When you think about this from their point of view, it makes perfect sense. To lend you money, they first need to know that you will be able to pay it back and that the amount that you are asking for is suitable. This not only protects you, but it also protects the lenders. Only taking out a loan that you can realistically pay back without financial hardship is essential.
Full financial profile is key
When it comes to lending money, most people now know how crucial their credit score is to their application. This score tells the lender how likely you are to pay back the loan and make your monthly payments on it and on time.
However, your credit score is not the only issue that lenders will consider. Nearly all lenders will want to see your full financial history as well. This means that when you apply for a loan, you need to be prepared to share everything with your lender.
What do lenders look at specifically in a loan application?
Here are the top things lenders investigate and consider when looking at potential loan applications : the applicants’ credit score, credit history, income and expenses, length of loan, liquid assets, collateral, and employment.
As well as your three-digit credit score, lenders will also dig further into the history behind it. This allows them to get the full picture before agreeing to your loan application.
What is your credit history? In simple terms, it is the general history that personally involves your finances and bill payments. It could involve looking at complete non-payment of bills, foreclosures, outstanding debt or a high number of recent credit applications. While any of these may not stop you from getting a loan, they could affect the interest rate that you receive.
Income and expenses
Many people think that simply having a high income coming in each month is enough to secure a loan. While this naturally helps, it is not quite as simple as you might believe. The lenders whom Monevo can connect you with will probably also look at your expenses. If you have high expenses each month, then these will have an impact on you receiving a loan. Most lenders will look for a total debt-to-income ratio of 43% or lower before authorizing your application.
Length of the loan
One important factor that any lender will look at is the amount of time that you want the loan. In general terms, lenders will give better interest rates on shorter loan periods. This is because they assume that you will be more likely to pay the money back over a shorter timescale. If you can afford it, then try to take out a shorter-term loan that will see you out of debt faster when paid off.
What liquid assets do you have?
Of course, your income is the main factor that lenders will look at in terms of how you will repay your loan. These assets, such as savings, can convert into cash quickly if need be to cover the loan payments. If you have some liquid assets, then you will be less of a risk and more likely to get your loan.
Collateral is key also
What is collateral? It is simply an asset such as a car or house that has enough value to cover the loan. In essence, it is a safety net for lenders because they can see that you own something that you can repay the loan with if you do not have the money yourself. However, using collateral in personal loan applications should be used with a lot of caution, as this can result in you losing the asset(s) if circumstances take a turn for the worse and you’re unable to repay your loan back with the terms you originally agreed upon.
Employment history is a key factor for many lenders, especially when they are agreeing to mortgage loans. Most will want to see that you have been in a steady job with a constant income for the last 24 months. If you have a more patterned work history with a lot of movement and change, then this could lead to you getting a higher interest rate. While this can be a hassle, you should still receive authorization for the loan if required.
What should you do to help?
Monevo has helped facilitate loans for many people and can recommend the best practice to help you get your loan applications approved. Make sure to look after your credit score and history by paying bills on time, keeping credit card balances low and trying to build up a good recent employment history. If you combine this with some liquid assets, then you will find that getting a loan is a straightforward process.