5 Questions Serious Lenders Will Ask You Before They Approve Your Loan Application
Lenders are often choosey about who they lend money because they don’t like giving money to high-risk individuals who will find it hard to repay the loan. However, potential borrowers also need to be choosey about lenders so that you don’t waste your time sending out loan applications to lenders that won’t even give you a chance. You also need to be choosey about potential lenders so that you avoid pulling many unnecessary hard inquiries on your credit report.
You can easily know if a potential lender will be able to help your finances or if the lender will be another waste of time and resources. Lenders who really want to lend you money will take the time to know as many things as they can find out about you without being snoopy. This article provides insight into five main questions that serious lenders will want you to answer before they lend you money.
1. Are you eligible?
The first question that lenders want you to answer before they lend you money has to do with the minimum eligibility requirements. Lenders would like to know if you are 18 years or older, they’ll like to know if you are an American or if you have permanent residency. Lenders will also like to know if you are employed and earning a gross annual income of at least $20,000.
Other questions that might surface about your eligibility include the number of times you’ve defaulted on your credit card payments in the last five years. Serious lenders will also like to know if you’ve declared bankruptcy in the last seven years.
2. Do you have a decent credit history?
Secondly, serious lenders will pull your credit history before they decide on your application. They might pull a soft inquiry or a hard inquiry but they’ll definitely pull your credit report. Serious lenders will however pay extra attention to your history of getting unsecured loans and they’ll look at your success or failure in repaying such loans promptly.
You should note that the salient parts of your credit report could make or mar the ease with which you’ll be able to obtain loans in the future. Hence, you should endeavor to adopt best practices for being in good credit standing. Even if you don’t have excellent credit, Creditloan experts submit that you can start work on to rebuilding your credit now.
3. Will you be a good or bad debtor?
Lenders will also try to deduce if you’ll be a good or bad debtor before they reach a final verdict on your loan application. Lenders can easily get insight into your financial solvency by calculating your net worth in order to know if you’ll be able to repay the loan. Your net worth is simply a function of subtracting your liabilities (the debts or payments you owe from your assets (things you own). A lender will have a positive disposition towards lending you money if your assets are more than your liabilities. Conversely, you’ll have a hard time securing another loan if your liabilities are more than your assets.
4. How stable are your finances?
Serious lenders will also want to see proof of stability in your life and in your finances. You are not likely to be able to secure a loan if you are homeless, stay in AirBnBs, or currently squatting with friends and family. Hence, you might want to get a place you can call home with a lease of at least six months. If you stay with your parents, you might need to provide prove of residence for two years or more before you stand sending out your loan applications.
For financial stability, you’ll need to show prove of employment and prove that you’ve been with your employer for at least one year. If you are self-employed, serious lenders will love to see your tax returns or bank account statements in order to benchmark your annual earnings.
5. Do you have a solid repayment plan?
Lastly, lenders will want you to provide them with provide them with proof that you can afford to repay the loans. In essence, a lender will check out your income in relation to your expenses in order to know if you’ll be able to afford the monthly repayments. Lenders will be eager to lend you money if your finances show an excess capacity in which your income is more than your expenses.
You’ll also have high odds of getting your loan approved if you can show proof of an emergency savings fund. Lenders will also consider you a prime candidate if you have investments some near-maturity conservative low-risk investments such as bonds or treasury bills.