Are you considering taking out a loan? If so, there are several things lenders look for when evaluating loan applications.
Knowing what these crucial elements of the process look like can help you better prepare for obtaining your desired financing and make sure you have the best chances of approval.
In this blog post, we’ll break down the five key aspects that almost all lenders review before deciding on whether or not to offer a borrower a competitive loan agreement: credit history, financial stability, collateral (depending on the type of loan), payment history, and other qualifications.
Why You Need To Understand The Loan Application Process
It’s important to clearly understand the loan application process, as lenders are looking for certain key elements to ensure they receive their money back with interest.
If you can understand what lenders typically look for, you will be one step closer to successfully obtaining your desired loan.
Common Types Of Personal Loans
Personal loans are one type of loan that lenders review. The most common types of personal loans include:
Installment Loans
These types of loans require the applicant to make regular payments over a set period of time, with the loan principal plus interest being fully repaid by the end of the term. These loans are often for larger purchases. An auto loan would be a typical example of an installment loan.
Mortgage Loans
Mortgage and home equity loans are secured against a borrower’s home or property. Since these types of loans come with collateral, they typically have lower interest rates than other forms of financing.
Home Equity Loans
Home equity loans are similar to mortgages in that they are secured against a borrower’s home or property without the same restrictions and eligibility requirements.
Unsecured Loans
An unsecured loan doesn’t require collateral, so lenders typically offer them with higher interest rates than other types of loans. Credit cards and student loans are both examples of unsecured loans.
Once you know what type of loan you need, it’s time to look for the right lender to provide that loan.
How To Pick The Right Lender
There are many criteria to consider when picking a lender to apply to. Here are a few of the major ones.
The Type of Loan You Need
Different lenders specialize in different types of loans. Make sure to look for a lender who offers the type and amount of loan you need.
Interest Rates
Not all lenders have the same interest rates or fees. Research various options to find the best deal that fits within your budget.
Credit history
Your credit score plays a vital role in determining which lenders are a good fit for you and what terms they can offer you. Higher scores often result in better loan offers with lower interest rates and fees. At SkyCap Financial, we work with borrowers of all types and even issue loans for people with bad credit or no credit.
Online Reviews
It’s a good idea to read online reviews of lenders to determine which ones have reputable customer service and offer competitive terms.
Once you’ve had a chance to shortlist the lenders that would be a good fit for your needs, it’s time to look at what lenders look for in loan applicants.
The 5 Things Lenders Look for in Loan Applicants
When it comes to taking out a loan, there are a few things lenders will look for to determine whether you are a good candidate.
These five key elements include:
Credit History
Your credit history reflects your past financial behavior, which can tell lenders a lot about whether or not you are likely to pay back the loan as agreed. Lenders review your credit report for late payments, defaults, bankruptcies, etc. It’s also important to know that many lenders have minimum credit scores they will work with when evaluating a borrower.
Financial Stability
In order to determine if you can repay the loan, lenders will look at your current income level, your employment history, and other sources of revenue, such as investments or rental properties. They want to ensure you won’t struggle to pay them back in time. In some situations, bank statements may also be required.
Collateral (aka. a secured loan)
Depending on the type of loan, some lenders may require you to provide collateral to secure the loan. This could include property, vehicles, or other valuables, which can be used to repay the loan if you default on the payments. One of the most common types of collateral is a house or property, as mortgage lenders will use it to secure the loan.
Payment History
Your payment history is another important factor in getting approved for a loan. Lenders and financial institutions want to ensure they are not at risk of losing money by lending to someone with a track record of missing debt payments and defaults.
Debt To Income Ratio
Your debt-to-income ratio (DTI) measures your current debt compared to your total income. A lower DTI ratio indicates that you are more likely to be able to pay back the loan, while a higher DTI ratio indicates that you may be stretched too thin and may struggle to make timely payments.
By understanding these five key elements, you can better prepare yourself for the loan application process and increase your chances of getting approved for the financing you need.
I’ve Been Rejected For A Loan. What’s Next?
If you have been rejected for a loan, don’t give up. It may be possible to improve your financial situation and make yourself more attractive to potential lenders. Or, you may be able to find alternate options in the market.
Here are a few tips for what you should do next if you are denied a loan:
Improve Your Credit Score
You can improve your credit score by paying off any outstanding debts or making timely payments on existing loans.
Income and Expense Adjustments
You can also work on increasing your monthly income or reducing expenses to increase your disposable income each month.
Increase Your Down Payment
If you are taking out a mortgage or other secured loan, you can increase your down payment to reduce the loan risk for the lender, making it easier to qualify.
Debt Consolidation
Debt consolidation combines all your existing debts into a loan with a lower interest rate. This can help reduce your monthly payments and make it easier to manage your debt.
Look For Alternative Lenders
You may be able to find alternative lenders that specialize in offering loans to people with bad credit or no credit. These lenders often offer more flexible terms than traditional banks, so they may be a good option if others have rejected you.
No matter what type of financing you need, SkyCap Financial is here to help. Our team of experienced loan specialists are dedicated to helping our clients find the best solutions for their financial needs. Contact us today for more information about our services!
Conclusion
Now that you know the five things lenders look for in loan applicants, you can be sure to put your best foot forward when applying for a loan. By demonstrating a solid credit history, employment stability, and responsible financial habits, you’ll improve your chances of being approved for a loan – and getting the best possible terms.
If you’re looking for a loan and have bad credit, SkyCap is an excellent option. We provide installment loans to people with low credit scores, so you’re more likely to be approved.
Ready to get started? Apply today!
