How to Secure a Loan: 5 Key Factors Lenders Consider

Secure A LOAN

Introduction

In a world where competition is fierce for everything and anything, standing out is vital in any application you are making, especially regarding financial offers. This can be a big deal if you want to secure a loan.

When securing a loan from any lending institution like a bank, credit union or online lender, lenders consider vital keys before granting an interested borrower a loan. 

In this blog post, we will look at five keys that make a successful loan application. 

5 things lenders will think about before giving out a loan

  1. Credit Score and Record 

An applicant’s credit score is a three-digit score that shows a customer’s creditworthiness based on information such as the number of accounts, history of repayment, and debt level. 

An applicant’s credit score is the most essential factor that lending institutions consider when reviewing their ability to secure a loan. Various factors, such as loan repayment record, debt load, and credit history length, determine a person’s credit score, which ranges from 300 to 850.

A poor credit score, typically below 600, will be a massive turn-off for most lenders because it poses to them that you will be unable to pay back your loan. Lending is a business and not a charity work. The lending organisation will only stay in business if the borrower repays the loan. A good credit score is always about 700, and above, a score of 800+ is always regarded as excellent. 

Most institutions will not outrightly tell you their preference for a credit score; however, you want to ensure that you meet a great credit score as a borrower. 

CREDIT SCORE
  1. Cash flow and gross Income

To begin with, don’t be surprised that your lender will not reveal their minimum income requirement for anyone seeking a loan. However, SOFi requires a lender to have at least forty-five thousand gross income annually to qualify for a loan. In contrast, some other lenders require as low as half of that. Your gross income shows that you can repay the loan if granted. 

Someone with an annual income of 30,000 cannot repay a loan of 50,000 dollars in a year and probably cannot even repay in two years. Hence, your income determines the amount the lending institution will be willing to give you. 

Note- Evidence of income may include recent tax returns, monthly bank statements, pay stubs and signed letters from employers; self-employed applicants can provide tax returns or bank deposits.

  1. Collateral or Securities

A lending institution will consider a borrower quickly if they can provide collateral or security to ensure the loan will be paid in due time. A Collateral is any valuable asset that can be traded off to reimburse the loan in the case of a default. 

A collateral can be an asset like a car, a piece of land, or a house. Savings accounts, certificates of deposits, and precious metals can also be used as security for a loan

Note- A person with collateral or any valuable asset to secure a loan is more likely to get a loan approved than someone not presenting one. 

  1. Debt to Income Proportion

The ratio of the debt to income, abbreviated as DTI, is the proportion allocated to pay the borrower’s debt monthly from their gross monthly earning. A DTI that is lower than 40% is preferable by most lenders because this shows that the potential borrower will be able to continue paying both old and new debts. However, some lenders will give prospective borrowers with up to 50% DTI if they excel in other points. The lender knows that you have bills to cover and fundamental expenses you can not do without- a high DTI means that getting back their money might be a hassle since you already have a lot to pay for loans. 

  1.  Amount of advance deposit

Many lending institutions do not require a borrower to deposit an advance when seeking a loan. However, a few will require that a borrower have an initial deposit. These institutions operate like a mortgage broker, and they help people purchase goods and valuables.

A lender can decide to pay for 60% of the cost of buying a car if the borrower can pay 40% upfront and then negotiate on the interest and repayment duration. A borrower with a larger down payment has a greater likelihood of a loan than one with a lower down payment. 

Note- the lesser the down payment, the greater the interest on the loan. 

Final Note

Getting acquainted with these keys will help you increase your chance of securing the needed loan and also help you consider your repayment plan. Getting a loan is easier than repaying it if it is not adequately planned. 

If your application for a personal loan is denied by a lender, taking proactive steps to improve your chances of obtaining a loan can be done if this occurs. You can improve your chances of being approved for a loan by increasing your credit score, reviewing your loan application for any possible errors, and asking for specific reasons why you were denied approval. Comparing the requirements of different lenders, applying for a smaller loan amount, and working with a co-signer are all options that can be helpful in this situation. (Secure a loan)

By improving your credit score, you can work towards improving your eligibility for personal loans in the future.

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1 Comment

  1. Great article, by the way, I was searching for such a good article, you made it easy. I will definitely forward it thanks

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