7 Factors Other Than Your Credit Score That Determines Your Loan Qualification
When applying for a loan, there are many factors that determine whether you qualify for the loan or not. Plus, the rate of interest to be applied on the quick loans and any other fees incurred are also dependent on the factors that will be mentioned below. Lenders will always want to know their client’s full financial profile before they grant them loans. So, when applying for a loan, it is necessary that you be adequately prepared to share virtually everything relating to your finances. Here is a short list of some of the factors lenders consider when determining the status of your loan application.
A customer’s credit score doesn’t always reveal everything there is to know about the customer’s financial status. A credit score is just a three-digit number that’s calculated from the information on the customer’s credit report. The credit score is used to predict the likelihood of a customer repaying the borrowed money.
The credit history, however, enables the lenders to have a peek at the customer’s outstanding debts, unpaid collection amounts, number of recent credit applications, foreclosures, a past bankruptcy, etc.
Income and expenses
Lenders are less likely going to view you as a risky investment if you have a steady job and high income. That only means that you are more likely in a position to pay up your monthly debt obligations. When applying for loans like mortgages, however, you must have a debt-to-income ratio of 43% or lower to stand any chance of qualifying for a loan, especially with a reputable lender.
When applying for a loan, the length of the loan is also a vital factor to consider. If you opt for a shorter loan term, you will have to make higher monthly payments plus the interest accrued through the life of the loan will also be shorter. Loans with longer terms accrue higher interests but their monthly payments are lower.
Low loan amounts mean that the bank risks less cash. But if you can offer a large down payment, then the lender will be even more willing and generous with the interest rates set on the loan amount. A sizable down payment can also help you acquire a loan supposing your credit score doesn’t qualify you for one.
Other types of loans like home and car loans require that you involve a collateral. A loan with collateral typically makes it secured and opens the lender up to offer you the loan more easily. Loans with collateral are secured. And that means that they come with lower interest rates as opposed to the unsecured ones where lenders impose high-interest rates.
Some lenders might also be interested in the kind of assets you have before they approve your loan applications. Lenders will always want to find whether you have any assets that you can convert into cash fast so as to make the payments should you lose your job or incur any other financial setbacks. They are the liquid assets. And they can be in the form of money market account, savings, stocks, or even government bonds. Lenders also view borrowers who have liquid assets as less of a risk and may choose to offer them loans with lower interest rates.
Some lenders may also be interested in your employment history before they approve your loan application. Loans like mortgages fall in this category. The main purpose of viewing your employment history is to assess your income stability. Even the lender is not looking to hand over a loan to someone with a spotty employment history or no income. You may not be denied the loan. But chances are high that it will have higher interest rates on it.