Getting a personal loan isn’t as easy as it may seem. People nowadays can apply for a loan to fund a new business venture, for house construction or renovation, pay for medical bills, and many more. However, not all customers are eligible to apply for a loan.
Always remember that lenders, even banks, are not created equal. So, if you’re planning to apply for a loan, know that each entity has its own process for reviewing loan applications. There are documents needed and other factors on which they’d base their approval.
Here are factors considered by lenders when they review an applicant’s loan application:
1. Income
One of the most vital factors lenders like Auckland Loans check is your income. They want to ensure you can pay them back for the money you’re trying to borrow. You’ll be required to submit proof of income documents as part of the requirements. Most of the time, lenders and banks have higher approval rates if the applicant has a steady and sufficient income.
A higher income means a better chance of loan approval. Sometimes, the amount you want to borrow will also depend on your income documents because lenders like to ensure you can pay on time. Remember not to submit a forged or fake income document, as lending companies know when it’s real or not.
2. Credit Score
Next to income, your credit score will also determine the approval percentage of lending companies. The credit score is the figure used by lenders to determine an individual’s capability to manage their debt. An excellent score is vital in securing a loan, and not everyone gets to maintain a high score because even one missed payment on a previous loan can significantly affect your credit score. Anyone can apply for a loan, but not all are approved because you must first meet several requirements.
Your credit score report can determine how well you manage your finances. Thus, a low score would likely lead to a declined loan application. The higher your credit score, the better the chances your application is approved. Hence, manage your finances well so that when you’ll be applying for a loan, your good credit score will be your key to loan approval.
3. Employment History
Your work experience is also checked as you apply for a loan. Bank and lending companies prefer individuals who have been in the same industry. It is believed that when people shift from one profession to another, the approval of their loans may be affected and banks or lenders might not approve the application quickly.
When it comes to employment, lenders will usually call the human resources department of your company. They’ll verify your employment status, position, salary, and other work-related details. As you fill out your loan application, answer the questions honestly because one wrong answer can result in loan rejection by the loan officer.
4. Collateral
In some loan applications, some lenders offer non-collateral and collateral loans. Here’s the difference between the two:
- Non-collateral loan: Also known as an unsecured loan, this type of loan only approves eligible individuals with high credit scores and borrower creditworthiness.
- Collateral loan: Collateral is a valuable asset used to secure a loan from a bank or lending institution. It may be in the form of your vehicle or any real estate property you own. The value of your assets will be appraised. Once you have the appraisal value, that will be the range limit of how much money you can borrow. It’s also known as a secured loan.
For non-collateral loans, it may be harder for you to get approval because they’re unsecured. Meanwhile, applying for a collateral loan can be risky. Once you miss a payment deadline or depending on the contract you have with the lender, they have the right to seize your assets if you don’t get to pay your loan on time.
Final Thoughts
Applying for a personal or business loan may seem difficult for first-time loan borrowers. It may require time and effort as there are requirements to be submitted and forms to be filled out. Note that these financial institutions have different policies on loan applications.
The best you could do for now is start managing your finances well to have a good credit score. Having a good income begins when you choose the right industry for you. Moreover, planning will give you a good head start because as time passes, you’ll be able to invest in some assets you can use as collateral if needed.
