When applying for a mortgage, auto, or personal loan, it is important to have a good credit history. Most loan seekers do not know if they have the necessary qualifications the lender needs. There are several factors the banks and other financial institutions always evaluate when looking at a loan application which every loan seeker should know. Find out more about these different factors and work on getting that loan.
Almost every lender looks at the credit score and account statement because it gives them a clue on how the user handles the borrowed money. This information comes in handy during the Active Debt Recovery phase. Poor credit history shows a risky deal which is a big turn-off for several lenders because they may face difficulties recovering their money or there is no chance of getting it back.
The higher a credit score, the better the chances of getting the loan. Lenders do not always reveal the minimum credit score but to be on the safe side, the score should be 700 to 800.
The Income And Employment History
Before giving out any loan, lenders want to ensure the money borrowed will be paid back. Using Active Debt Recovery, they are interested in knowing if the debtor has a sustainable income for the amount they want to borrow. The earning requirements differ depending on the amount being borrowed. Lenders need to see that the income is high so they are assured payment schedules and deadlines will be followed.
The debtor also needs to show proof of stable employment. Those who work part of the year or self-employed people who are just kick-starting their career may find it difficult to get a loan as compared to individuals who work all year.
The Debt-To-Income Ratio
Strongly attached to the income statement is the debt-to-income ratio. This requirement looks at the debtor’s monthly debt income. Lenders always love to see a low debt-to-income ratio which should be approximately 43% of the debtor’s income.
Individuals whose debt payments take more than 43% of their income have a low chance of being accepted for mortgage loans. In cases like this, a good credit score and history can convince the lender to grant the loan request.
Value Of Your Collateral
Collateral is what a debtor agrees to hand over to the bank in case they fail to keep up with loan payments. Loans that include collateral are known as secured loans, while those with no collateral are referred as to as unsecured loans since the bank has no means of recovering their money in case the debtor fails.
The value of collateral also plays a major factor in determining how much the debtor can take. The bank or financial institutions need the guarantee that the debtor will pay all they owe.
Size Of Down Payment
Some loans need a down payment and the magnitude of the down payment will determine the loan amount. A huge down payment is a proof that the debtor is capable of managing the loan and will pay up within the agreed deadline.