At any point in time, you may require a loan, whether it is for financing a new house, a car, or for paying off debts. Individuals and businesses both could need investments. There are a lot of things that lenders such as banks and financial institutions might consider and assess from the borrowers before granting a loan like a credit score. There are many online options available where the person seeking a loan can check their credit score free of cost.
Therefore, before you apply for a loan, you must consider how eligible you are and if you meet the following requirements and criteria. Having your loan sanctioned could get you through a lot of things, whatever your reasoning might be.
However, it is best that you self-assess your capability of paying back the loan before applying for one, or determine whether or not you would be willing to place a collateral in exchange of your loan as there might be possible that you are not able to pay back the loan and the lender may fall back to the security deposit and take over or sale it to regain the amount lost and recorded as a bad debt. Every loan might differ in terms of their loan conditions and repayment schemes. You should look out for those with the best terms that might be suitable for you and your budget.
- Credit score
A credit score is an expression based on an assessment of an individual’s credit files/reports that represent the creditworthiness of a person or a business. Different bureaus regulate these credit reports. The best of credit scores is a solid 800. Anything that lies between 700 and 800 is commendable. You can quickly get your loan approved if you possess such a credit score. However, if your credit score is anything below 300, there is a high chance that your request for a loan application will reject. A credit score can allow a lender to predict the likeliness based on some accuracy of making repayments on time.
- Monthly income
Before a financial institution or a bank would consider lending a loan, it would want to review your financial income stream. A lender knowing that the individual who has sanctioned a loan can repay it with a degree of their monthly income will most likely have the loan request granted. If your salary or surplus income is decent enough, it will assure the lender that you will pay the loan on time. A healthy financial stream depicts the creditworthiness of an individual, whether it involves your earnings or surplus income coming in. Individuals with lower income convey a message to the bank/lender that you are financially stretched and would most likely fail to pay their debts.
- Collateral available
In some cases where a bank is not considering your financial income stream or if you are unemployed, instead of disqualifying you from having a loan granted, banks often would want individuals to place a security deposit in return. Usually, assets and property with hard cash value are preferred. If the borrower defaults the loan, the bank will fall back to the collateral that placed in exchange for the credit. Often banks would want a security deposit that may be of equal value to the loan amount that sanctioned
Your occupation plays an important role when it comes to you receiving a loan from the bank. Usually, individuals with stable jobs and are working in government agencies are most preferred in loan granting. The second priorities down the line are people who work with doctors or blue-chip companies, chartered accountants, lawyers, etc. Those doing their own business or are working in private companies are least preferred and possess the lowest score. As mentioned above, the ability to repay the loan mainly depends on the level of income you earn. Loan applications weakened with paltry salary and financial stream history.
For loans, financially stable individuals preferred. Age is also a factor and a precaution that considered when lenders assess the ability of borrowers to pay back loans. Therefore, people that fall in the age group of 30-50 given priority considering they are of working age and have a couple of years before retirement and maybe enough to pay back the loans. Usually, People who are above 60 often face rejection and are considered the worst in the eyes of borrowers.
- Work experience
If you ask other borrowers who had experience with loans and lenders, you will notice that most banks and financial lending institutions acquire your previous work experience. The number of years you have worked and are currently working in a company proves the employee’s job stability. The longer you serve in a company, the more chances you have of having a decent score that would be able to grant you a loan. Sometimes with a minimum of three years of work experience requirement, a bank would prefer giving credit to an individual with ten years of work experience over five.
- Repayment period
The shorter the payment period you opt for, the more willing a bank would be when it comes to facilitating you with a loan. Choosing a loan repayment plan that lasts up to five years considered by banks as it portrays the willingness and confidence of an individual to pay back the loan on time. The maximum score gave to those with a shorter span of payment periods, and it falls by half or more when the repayment period is longer or delayed. In case your loan approval is being rejected, you might want to consider shortening your loan repayment duration.
- Loyal customers
Banks often prefer giving loans to old customers who have been faithful to their banks for an extended period. The advantage of applying for an investment in your bank allows the bank to assess your creditworthiness and financial reports quickly. As per experience and previous relation with the customer, that bank already knows how responsible their customer might be. Therefore applying for a loan in your bank is preferred because the chances of getting a loan are higher.
- Purpose of loan
Before granting a loan, banks would prefer knowing the reason for your application of the loan. For instance, if you need a house loan for a readymade, pre-constructed home, you will likely receive the credit in contrast to you applying for a loan when your home is under construction, as there is a possibility that the builder delays possession or the home takes longer to construct an anticipated. Similarly, requesting a loan for smaller reasons and with smaller amounts are quickly approved.
- Business financial details
If you are applying for a loan on behalf of your business or you own a business, you would need to submit all relevant financial documents such as balance sheets, profit and loss statements, cash flows, and other financial statements that a bank might need to assess your business credibility. In case you are not having enough history of income statements putting up collateral or having decent credit could also grant you a loan.
Above mentioned things that might have to consider before applying for a loan if you fall in any of the above criteria, you can easily apply. You might want to be careful when applying for a loan to pay off your debt, as taking a loan will only increase your debt and ultimately leave you in a financial strain. Check with multiple banks before settling on one when it comes to applying for a loan.