Money and Responsibility

Factors That Lenders Consider When Evaluating Loan Applications

No matter what type of loan you apply for, the lending institution will evaluate the information you provide to determine whether to approve the loan. The factors that lenders use may be stricter for more substantial loans than for smaller loans, but most lenders still base their decisions on the following factors.

Your Credit Score

The score you have tied to your credit history plays a critical role in two things. First, it affects your ability to qualify for loans. Two, it affects the terms you acquire for the loan if the lender approves you. The score you need to qualify for a loan depends on the type of credit line you apply for.

Your Income and Financial Situation

The second factor that matters is your income and financial situation. The money you earn from your job tells lenders how much you can afford to pay. Your financial situation also affects this. If you have a high income and no debts, you'll have an easier time getting a loan. If you owe a lot of money and have a low income, you might experience problems getting approved.

Your Job Length

Some loan types are not affected by the length of a person's job, but car lenders and mortgage lenders generally do. They usually look for two years of job history with the same employer. That is the basic standard that lenders want to see when evaluating loan applications.

The Amount of Your Down Payment

The amount of cash you can afford to put down on the loan also matters to lenders. If you want to buy a house, you will have an easier time getting a loan if you have money for the down payment. If you don't have money for this purpose, the lender may evaluate other factors more carefully before approving or denying your application.

The Collateral for the Loan

Finally, the collateral you offer also affects your ability to get a loan. If you are buying a car that is worth $10,000, the vehicle is the collateral. The lender will not offer a loan that is greater than this amount if the collateral (car) is not worth more than this. Collateral makes a big difference with loan approvals.

If you need a car loan, mortgage, or any other type of credit line, contact an institution that offers loan services. By calling, you can learn how to apply for the loan type you need, and you can ask questions if you have any.