Have you ever wondered what a lender looks at when assessing someone for a loan?
The fact of the matter is that there are innumerable variables that come in to consideration – way too many to cover off in a short blog post – but there are some basic tenants that are helpful for a borrower to understand when they are getting ready to apply for a loan.
First and foremost, a lender will want to know about your credit history and will check your credit file. Obviously if you have defaulted on a previous loan they will want to know about it, but there are more clues on a credit file than basic defaults or bankruptcy. For instance, if there is a pattern of lots of enquiries for credit this may influence whether you are seen as credit worthy. If you do have a default this doesn’t necessarily rule you out for a loan entirely. Sometimes, the lender can be influenced by mitigating circumstances, otherwise there are specialist lenders in the market who may still write you a loan with conditions (such as a higher interest rate). There are also credit repair companies that can help with blemishes on your credit file. If you are in a situation like this get in touch and we will see if Blackwattle can help you.
Lenders will also want to see that you have stability in your personal circumstances. Factors such as how long you’ve been in your job and/or industry will be considered, and whether you have moved house frequently. For self-employed and commercial loans, a lender will want to know that you have a good track record in business.
The lender will also want to feel comfortable that you can repay the loan without experiencing undue hardship. In short, they will not want to loan you more money than you can afford to pay back. They will check how much money you have coming in versus how much you are spending on your living expenses. Budgeting tools can help you stay on track of your outgoings, and you can estimate your borrowing power to see what is affordable for you.
Your asset position will also come in to play. What do you own? Do you have property already, and if so, how much equity is there? Do you have shares or other investments? Savings? What other debts do you have? And ultimately, what is the net position after your assets and liabilities are set off against each other. This is pretty simple: the stronger your asset position the more comfortable a lender will be with giving you a loan.
If you are looking for a secured loan (such as a home loan), the lender will want to know that the secured asset (the house) is worth more than the loan. This gives the lender security that if something goes wrong that you will be able to cover the debt by the value of the asset. Same rings true for any secured loan such as a car on a car loan, or business assets on a commercial loan – the lender will want to cover all or most of the debt with the value of the asset.
Finally, broader macroeconomic factors will be taken in to consideration. Things such as official interest rates, economic direction, and sometimes factors relating to your industry of business or employment will influence a lenders decision to give you money.
A good broker will understand the factors considered by a lender and will be able to help you navigate the credit approval process and make the best case when applying for credit. Get in touch with us now for help with your next loan.