Taking out a loan, whether you get it from a traditional bank or an online cash loan provider, is a serious business. Since you are borrowing money from lending companies, they have the right to look into your financial history and evaluate several factors. They need to make sure you’re suitable to receive credit and you’re unlikely to default on paying back the loan.
If you’re thinking of securing a loan, obtaining these five factors increase your chance of getting approved of the loan.
Good Credit History
In business, you can’t say, “do not dwell on the past” as an excuse. Lenders take your borrowing history into consideration to predict whether or not you’ll be able to pay off the loans you’re applying for.
They review credit report information. If your credit score is high, that means you’ve built a good credit history in the past and you’re a borrower who repays efficiently. That said, you’re more likely to get approved and get a good rate. If you have a bad credit or if you never had the chance to build a credit history, you may be declined of traditional loans. You may also consider taking out loans with higher interest rates in other borrowing solutions, like short-term cash loans online.
In addition to your score, lenders also evaluate your repayment activity. Any outstanding debts or late payments could influence your eligibility.
Stable and Sufficient Income
Beyond credit scores, it’s crucial for lenders to check if you have the capacity to repay the loan by assessing your income. Simply stating your income isn’t enough – some lenders require pieces of evidence in the form of pay stubs, tax forms, or bank statements.
Lenders may also dig deeper into your employment history to weigh whether or not you’ll be able to pay back. Lending companies are always in favor of borrowers with stable jobs, earnings, and a clean financial history.
Good Debt to Income Ratio
Just because you have other debts doesn’t mean your chance of getting approved of another loan is significantly thinner. Debt to income ratio is a factor that computes debt as a percentage of your income. Most lenders calculate to find out how much of your monthly earnings go towards debt repayment.
The rule of thumb is if a huge portion of your income monthly gets eaten up by loan repayments, lenders are likely to deny your loan application. That said, it’s recommended to keep your monthly debt payments under 36 to 43 percent of your income.
If you are taking out a secured loan, such as a mortgage, auto, or title loan, the asset you’ll be putting on lien matters.
A collateral is an asset you pledge in exchange for the loan given. It boosts the lender’s confidence since it is something they can take and sell should you default on your loan in order to compensate for your unpaid debts. With collateral, the lender takes less risk and may be more willing to approve your loan.
A cosigner is a person who applies for the loan with you and agrees to pay off the debt should you fail to make payments. As collateral, which means fewer risk for the lenders, appearing with a cosigner increases your chance of taking out a loan.
A cosigner should have a good credit and income to qualify. However, this is a massive and risky favor, so both borrowers and cosigners have to come to a thoughtful agreement before pushing through. Form a legalese, if possible.
Author Bio: Carmina Natividad is a resident writer for QuickCash, an Australian-based business, providing short-term cash loans for your borrowing needs. She is passionate about writing articles regarding personal finance and money hacks.