Lenders don’t just grant loans to everyone who apply. They take a few aspects into consideration first. Read on to find out what these aspects are.
The modus operandi involved in providing personal loans differs across financial institutions. For instance, some institutions offer an online personal loan application, while others prefer direct contact at an actual branch. However, the documents required for a personal loan are common to all institutions. They need this information to ascertain whether their loan will be repaid in time or at all.
Here’s the criteria on which banks determine your eligibility for personal loans.
1. Your Credit History
The first factor that lenders take into consideration is your credit history. They perform a thorough inspection of your spending activities, repaying habits, and the history of previous loans taken by you. A bad credit history could be disastrous and cripple the chances of an approved loan. It also determines the personal loan interest rate you will be asked to pay.
Collateral is some form of security pledged to a lender in case you are unable to repay a loan. The term is primarily used when dealing with secured loans, like home loans or car loans. Lenders assess the value of your collateral by removing the amount of outstanding debt against it. The residual amount of equity is reviewed by the bank before providing the loan.
3. What You can Offer
A part of the income you receive is generally spent on repaying your loan. But lenders also take into account the capital you own. Assets like cars, investments, and property can help you pay back the principal loan amount that you borrowed. Before you receive a loan, lenders will carefully assess the worth of your assets to figure out the amount of money you should be sanctioned.
4. Your Trustworthiness
Repayment capacity. That’s one of the most important factors that lenders take into consideration. They need to be sure that you can repay your borrowings punctually, and only then will they place their trust in you. They look at your salary, the type of income, and how often you receive your income, before granting you a loan. Try the personal loan EMI calculators available online so that you can determine how much you’ll need to repay each month.
Even if you procure funds through online personal loan applications, the lender will call for a face-to-face meeting. They’re inquisitive and need to know your reasons for availing of a loan. Be prepared, and put together a strong case to prove to them that you require funds for the right reasons.
Keep these points in mind the next time you go to a lender. Focusing on these factors and ensuring that they satisfy the institution can go a long way toward getting a loan approved.