Factors That Banks Take Into Account When Applying for a Loan

You know that your credit rating matters when applying for a loan , but that is not the only factor that banks use to determine your eligibility for a loan. GOBankingRates lists a few more considerations that they should take into account when applying.

Whether it’s a mortgage, car loan, or personal loan, banks use several criteria to decide whether to lend money to you. As GoBankingRates (GBR) explains, when you apply for a personal loan, lenders can be a little more picky about your eligibility because there is no collateral (like a car or house) to support you in the event of a default. In any case, besides your credit rating, here are a few more things lenders consider when deciding whether to lend you a loan:

  • Your Income : Lenders prefer your monthly debt payments to be less than 43 percent of your income, GBR says.
  • Your employment history : Ideally, you should have a stable job that proves you have the income to pay off your debt.
  • Repayment history : In addition to your assessment, lenders look at your repayment activities. If you have outstanding debts or late payments, this may affect your eligibility.
  • Clearing Monthly Payment : This is the amount of your monthly payment to pay off the loan over a specified period of time. Combined with other factors, it will tell the lender (and you) if you can afford to pay off the loan on time.

There may also be individual requirements, such as whether you have experience with a bank lending money. In any case, it is helpful to know how this process works before taking out a loan. For more details on each area, navigate to the full GBR publication at the link below.

How do banks determine my eligibility for a personal loan? | GoBankingRates

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