When reviewing loan applications, cash loan services providers will first consider your credit score. However, that is not the only factor that they will consider. Your full financial profile will be used to approve the requested loan and even affects the interest rate.
Lenders will typically want a full credit history of accounts, your unpaid accounts, history of bankruptcy, payment of tax obligations, recent credit applications and any outstanding debts. If you do not have a credit summary, you should consider starting one today.
Expenses and income
The lender will look at the income you have versus to expenses you usually incur. If you have a high income, according to the lender, you are more likely to meet your monthly repayments for the loan. If you earn a high income, but then your rent takes almost half of your income, and the rest is used for your necessities, then you are not considered as a high-income earner by a lender. In fact, most lenders want a debt –to –income ratio to be 40% or lower for you to qualify for a loan.
Lower loan amounts are considered as less risky by lenders. If you have a large down payment, a lender will most likely give you a favourable interest rate. At the same time, if you do not have a credible credit history, your loan could be approved only if you have a sizable down payment.
When the length of a loan period is shorter, it means that the borrower is likely to be able to pay back the loan without much hassle. A loan with a short-term payment period means less interest but higher monthly payments. A longer payment term loan will usually mean a low monthly payment, but the overall interest might be high.
If you apply for a home loan or a car loan, the value of the house or vehicle is what lenders are interested in, because these items may serve as collaterals for the loan. However, if the asset is known to depreciate over time, the interest rate is more likely to be high in case you default, and they have to sell the car. The high interest covers the risk of losing the depreciated value of the car.
However, a secured loan or a loan with collateral might have a lower interest rate, as there will be security in case you default on your loan. However, it means that if you do not repay the loan, you will lose the asset given as collateral.
Lenders will know that your income is enough to repay the loan, but they may also need to know what assets you have that can be liquidated to pay the loan if you default on it. If you experience financial setbacks such as losing your job, the lender should be able to sell off some of your assets quickly to recover their money back. Some of these assets can be government bonds, savings or a money market account.
A current salary income might qualify you for a better rate loan, but the lender may also review your income for the past 24 months to see how stable the income is. If you were unemployed for some time or your salary has not been steady, it could be considered as a red flag. The lender may then only approve a high-interest loan, as they will likely think that it will be risky to lend money to you.