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The process of getting a loan. How lenders assess your application

Tamara Avatar By: Tamara | Last updated February 13, 2019

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The road to getting a loan is a long, tedious one. Lenders usually draft a full profile of the applicant and then assess it based on some rigorous criteria.

In you ever wondered what lenders look at when you are applying for a loan, keep reading this article.

The first thing you should know is that the assessment varies a bit based on the type of loan you are applying for: personal loan, car loan, home loan, etc. It is very important to be aware of the information they’re after, so that you can know how to prepare and deal with them. Your success in obtaining that loan relies on you meeting their expectations.

If you want to apply for a home loan, they will pay attention to 3 important aspects: your credit score, your collateral and your income. Regarding the credit, they’ll focus on what type of credit you’ve had so far, how many loans and how well you’ve managed to make your payments. If you want to get a favorable interest rate your FICO score should be at least 740.

However, even if you have a low credit score, you might still have a chance at a loan, but you’ll most likely need a guarantor who has a good credit score. The guarantor has to sign the loan agreement too, which complies him to agree to repay the money for you, in case you fail to do so.

In terms of income, lenders will be interested in your capacity of repaying your potential debt. They will evaluate that capacity by calculating your income and subtracting from it your current debts. Your employment history plays a significant role, too. A steady income is pretty much essential and even more important than a high income, especially if that income has to go into paying an even more insanely expensive rent for instance. Asking too much money, even if you do have a good, stable paycheck, could also be a problem, because the lender might be scared to take that big of a risk. The larger the amount, the bigger the risk.

You also have to be stable in terms of your residence. Moving and changing your address a lot won’t really help your case, because that can translate into instability and inability to hold a job or to keep a home.  

The collateral is another important aspect in your lenders’ evaluation when you apply for a secured loan. If you are getting a home loan, they will evaluate the very property you’re looking to purchase and only lend you max. 80-90% of the value of the property. The rest of the money have to be provided by you, in the form of a down payment. The same goes for car loans, only then the collateral would be the car itself.

The advantage of a loan with collateral is that it has a lower interest rate, because lenders don’t take too much of a risk. In case you fail to make your payments, they’ll just take the car/house back from you.