Applying for a loan without knowing what it takes to get an approval can trigger a quick rejection. Regardless of your reasons for seeking financing, lenders look at specific information and take several factors into account. Ensure a quick approval by educating yourself on factors that increase the odds.
Good Credit History
Don't expect a lender to approve your loan request without first checking your credit history and credit score. Credit history refers to your credit habits such as timely bills payments; and credit scores are three-digit numbers that help lenders assess creditworthiness. According to Experian, a score of 700 and above looks good on a loan application, because it points to good credit management. Raise your score first, and then apply for a loan. Keys to build a better score include paying down debts and always submitting payments by their due dates.
Ability to Repay
Lenders do not approve every loan request, and they factor in an applicant's ability to repay the loan before approving. Repaying a loan involves having the extra income to meet this new expense. To assess the ability to repay, lenders review tax returns, banking statements and other income statements. They next review an applicant's credit report to assess existing debts and monthly payments. Based on this information, lenders determine whether a loan is within a borrower's means.
Collateral
The majority of bank loans require collateral, which is personal property to secure the funds. Collateral serves to the lender's advantage; if a borrower defaults on the loan, lenders have the legal right to claim a borrower's collateral as repayment for funds. Properties function as collateral for mortgage loans, and automobiles are collateral for auto loans. But if applying for a personal loan to consolidate debt or make home improvements, the borrower may need collateral like a car title to secure the loan.
Shopping for a Loan
Meeting with one bank and requesting a loan doesn't ensure the best financing package. Every loan has an interest rate and loan terms. Comparison shopping first is key to getting the best deal. This involves requesting free loan quotes from several banks or credit unions and comparing each offer to see which institution offers the cheapest interest rate and monthly payment.
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