When you apply for a loan, you know there are no guarantees the lender will give their approval to your application. Since there are many factors that go into determining whether or not a lender will approve a loan, you need to make sure you have all your bases covered before you even start the application process. To give yourself the best shot of being approved, you need to know the factors lenders look at the most in these situations. To position yourself for success, here are four things lenders always take into consideration prior to approving a loan.
Credit Score
More than anything, most lenders place tremendous emphasis on your credit score. If your score is between 660-720, you probably won’t have any trouble getting your loan. Even if your score is around 600, you can likely still get a loan, although it may carry higher interest rates.
Income and Employment History
Before a lender approves a loan, it needs to know you will be a good risk. When doing this evaluation, a lender will closely examine your income and employment history. To get approved, it is best if you have not only more than enough income to make your loan payments, but also a stable employment history that will give your lender peace of mind when they approve your application. If you’re curious about the requirements from your local lender such as Fairway PNW, then you can call or email them for that information.
Value of Your Collateral
If you are seeking a secured loan from a lender, you will need to put up collateral that the bank can take possession of should you not be able to make your loan payments. However, remember that the collateral you put up must be of equal or greater value than the amount of the loan you are requesting. Therefore, expect your lender to closely scrutinize any collateral you want to use for your loan.
Debt-to-Income Ratio
Finally, your lender will want to know your debt-to-income ratio, since this will give them a much better idea of whether or not you will be able to make your monthly loan payments. For most lenders, a loan applicant’s debt-to-income ratio cannot exceed 43 percent. If yours is above this mark, it does not necessarily mean you won’t gain approval for your loan. However, if you can pay down as much of your debt as possible prior to applying for the loan, you’ll stand a much greater chance of being approved.
Whether it’s paying down your debt, improving your credit score, or making sure you have adequate collateral to offer a bank, taking these and other steps beforehand will make your loan application process go much more smoothly.
