Getting a loan is not a piece of cake. It might look as easy as walking into the bank and just walking out with the money. Various types of loans are available, and thus if you understand the loan options available, you can get the right amount from the right source. Be it a personal loan, a car loan, a housing loan or a mortgage; you might need to understand what it needs to get the loan approved. You might be familiar that your credit score plays an essential role in getting your loan approved, but that’s not the only thing. There are quite a number of factors that play a vital role in getting your loan approved. You can make it an easy process if you’re aware of the financial aspects that make an impact on the loan approval procedure.
We share with you 4 financial aspects that you need to know before you apply for a loan and you can get your loan approved with ease.
4 key financial aspects:
What’s your current financial status?
Yes, your current financial status can restrict or help you in getting your loan approved. Most lenders would be interested to glance through your current financial report for your savings and assets, current recurring debt status, repayment of those debts, and sometimes they even request for a detail of your spending and saving habits. Having major debts while you apply for a loan, can turn the tables and might refrain you from getting a loan approved. How much you pay for recurring debts would also be a factor to consider to the lenders. So, before you apply for a loan, consider your current financial record and how you can improve it.
Lenders would like to know your debt history, recurring debts, repayment history, savings and more. Some lenders are interested to glance at your cash flow. Also, some request for a detailed account of your spending habits and savings as well.
Additionally, lenders would like to know your equated monthly installment that accounts for the monthly payments you do to pay off the loan in a certain period. This will give an idea if you can afford the loan.
There may be other individual requirements too, depending on the type of bank or lender or the loan amount. There are quite a few lenders who would require access to your financial accounts to view your transaction and balance history.
Another important factor that plays a key role in getting your loan approved is your “income-to-debt ratio.” This gives the account for the amount of debt you have in comparison with your overall income. This factor is equally important as your credit score.
Your financial history plays a key role
Your financial history is the most essential financial aspect that can create a huge impact on your loan approval process. Your credit score would play the major role in giving the accounts of your financial history. It would give a clear account of, whether you’ll be able to repay your loan at the given point of time.
Your credit score provides the following details:
- Length of credit history
- Types of credit
- New credits added
- Payment history
- Total amount you owe or owed
If you have a higher credit score, then you get lower interest rates on your loan. Having a bad credit score can get you thrashed with higher interest rates.
Apart from this, lenders also would request for your credit report. This would give all the requisite details of your past and current credit & debit accounts.
Your income, employment, and duration of your current employment
The other essential factors are your income and employment. Be ready to answer the following questions:
- How much money you make annually?
- Where do you work?
- How long have you been in your current job?
Being in the same job for a few years might be an added advantage when compared with people who are self-employed or contract workers.
Confused? Perhaps this is yet another factor that can be an added advantage for your loan. Some lenders consider education an essential factor to determine your loan eligibility. If you have a degree with good grades, it can make a difference in your loan process. Some lenders even consider your standardized test scores such as SAT, ACT, etc.
When you look for loan options for any major investment, it is necessary to know about the loan options available and what the lenders expect from you. Keep track of your current financial situation along with your financial history before you walk in for a loan. Hope the above shared financial aspects would help you to prepare yourself before you apply for a loan.