What Factors do Lenders Consider While offering Personal Loans?
posted on 2020-09-08 13:19:38 by Admin
Are you looking for an instant personal loan? But worried about the eligibility factors your lenders have set? Every borrower wishes to get the best scheme when applying for any personal loan or mortgage. But this sure depends on what eligibility criteria your lender has set. Most of us believe that lenders only consider credit scores for providing online loans. But that is not the only factor most financial institutions or banks consider.
Here are the most critical seven factors as a borrower for personal loan:
Income and Employment History
Lenders take the borrower’s income and employment history into consideration when offering instant loans. They require proof of whether the borrower will be able to pay back the complete amount in time or not. If you borrow more money, lenders will need proof of your stable income source. The guarantees make them feel confident that they have a trusted borrower in line who will repay the money in time.
Generally, full-time workers with a good employment history quickly get the benefit of availing personal loans. However, the case is not the same as the part-time workers or freelancers at the start of their careers. Hence, it is quite essential to show a steady employment history.
Almost every lender keeps an eye on your credit profile. Credit score and report give the lenders an insight into how the borrowers manage their personal loans or any financial debts. A borrower’s poor credit history can increase the risk of default.
Usually, the ideal credit score range is from 300 to 850 as per Vantage Score and FICO Score, the two well-known credit scoring models. If you wish to get better personal loans online, aim for a higher credit score.
Do you have enough liquid assets such as savings or stock market money, or assets that you can convert into cash? You can use them as a down payment for your personal loan. Liquid assets reassure the lenders even if there is a loss of a job or in case the borrower is not able to keep up with the repayment. If you do not have enough cash in savings, you might have to pay higher interest rates.
Lenders find it comfortable to lend money for shorter loan tenures. Short loan tenure is a win-win situation for both lenders and borrowers as the latter will have to pay interest for less time. Also, lenders offer loans for a shorter loan tenure because chances are you will be able to pay off the loan amount shortly.
Financial conditions may vary with time. You may not be financially stable in the next one or two years, but possibly you can be in better shape over five or more years. If situations get bitter, you might face difficulty in paying the loan back. Hence, consider taking shorter loan tenures for better benefits.
Your Collateral Value
Collateral is a security deposit you agree with the bank if you fail in repayment of the loan. Secured loans involve collateral with loan repayment and have lower interest rates while unsecured ones do not. The reason behind the lower interest rates is banks or lenders know a way to recoup their money if their borrowers fail to pay. The value of your collateral determines how much amount a borrower can borrow from the lender.
Down Payment Amount
Some personal loans require the borrower to make a down payment. Down payments can vary from one lender to the other. The amount determines the money of your personal loan you need to take.
There is a high risk of paying more interest if you get personal loans online without or minimum down payment. For instance, in the case of a vehicle loan, you have spent more down payment, then you need not worry about borrowing more from the bank.
Your debt-to-income ratio is directly related to your income. Some lenders turn down the loan application if the debt-to-income ratio is lower than their required standards. If your debt to income ratio is lower, you have higher chances of getting your personal loan approved.
If the ratio is higher than 43%, the mortgage lenders will not accept your personal loan application. You can still get your loan approved if the debt to income ratio is more dependent on the excellent credit profile and high income. Before applying for any loan or mortgage, try to get your debt-to-income ratio lower than 43% by paying down your existing debt.
Hope these factors prove out to be helpful while evaluating your online personal loan applications. Understand each of these very carefully to increase your chances of success. Monitor your assets wisely and plan out your funds to avoid any delay in repayment. If you think any of these factors may come in the way of your loan success, try to weed those issues out before placing papers.