Applying for Loans: What Lenders Check to Grant It to You

What do you desperately want to buy this year? Are you planning to finally have your own home, car, or venture into business? Acquiring any or all of these can be possible without you toiling and waiting for many months. It’s good to have your savings or liquid assets ready, but if you want your dream acquisitions right now or at least close to it, you’ll want to have other financial resources. Like so many others, your best next move would be requesting a loan.

When it comes to requesting loans for a home or any other kind, it’s not just all about your credit scores, although it plays a huge role. There are so many other factors that your lender will pore into before they would approve your request. And this time, you may badly have been wanting for the approval.

Your lenders will check your records first, which may take some time, depending on the kind of loan you are requesting. Mortgage loan requests, for instance, will take up to thirty days or as long as several months before they’re approved. And you have to be willing to put up for it. In the meantime, the best you can do is present your records as clean as possible.

Factors that Influence Lenders’ Decision to Approve Your Request

Here are some factors that lenders will thoroughly look into before approving your loan request:

Your credit score

Having a good credit score is substantial during the lenders’ assessment. So, make sure you keep a good record. Two well-known models measure credit scores, such as the FICO® Score and the VantageScore. Before you can file a loan, get your credit scores as high as possible. Review your credit records to see if any errors can decrease your score. Get these mistakes corrected or deleted from your file.

Don’t use your credit limit to the fullest too. As much as possible, keep using it up to 30% or even less. Also, limit your new credit requests and inquiries. The more your records of queries for loans, the more your target lender will think that you are in a dire financial situation, thus not fit to be given a loan.

home loan

If you have a thin credit file, which means you don’t have enough history of producing a credit score, you can opt for many ways to fatten it up. Experian Boost and UltraFICO are two programs that can help collect your financial data, anything from your utility payments to your banking history. If you are a prompt renter, you can use RentTrack or Rental Kharma to record your payment histories.

Lastly, deal with your delinquent accounts, those where you have several missed or late payments. Also, don’t close your old accounts, as it can significantly diminish a few points from your score. Wrap it all up by consolidating your debts and paying them all in one loan.

Your employment and income history

Lenders will want to know if you can pay them throughout, so they will always check your income. The higher your loan, the higher your income should be. For your request to be approved, you must be working in an established company for at least a year or have started longer in your career.

Your debt histories

As mentioned, it’s best that you clear off all your debts before requesting a major loan for high chances of approval. Most lenders will particularly want to see a low debt to income ratio; otherwise, they wouldn’t consider your request. Even if you have a high income but have higher debt, most lenders will not take the risk.

Your collateral value

Collateral is also known as a secured loan; without it, the loan would be considered unsecured. There’s a reason banks give lower interest rates to loans with collateral—they have something to take in case you don’t pay them back. If you want a lower interest, you can involve collateral value in your request.

Your down payment and liquid assets

Also, as much as possible, give bigger down payment upfront since this would mean to your lender that you will not need to borrow much. Take care of your liquid assets too. These are anything you can easily convert to cash, such as your savings account, assets, and more aside from your down payment. Liquid assets assure your lenders that you would still be able to pay even if you go through temporary setbacks.

If you want to acquire the home or car of your dreams, getting a loan can significantly help, but make sure that you know what you’re getting into, especially that you’re ready for commitment, whether for the short-term or long-term.

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