What Lenders Look For in a Loan Application

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Applying for a loan can seem like a hard gamble. You can either get  approved or denied for a thousand reasons that you’re in the dark about. It’s important to know what lenders look for so you have a better chance of getting approved. It essentially boils down to the Five C’s:

Credit History

There are three specific aspects of credit history that lenders tend to focus on. The first is payment history, meaning you shouldn’t have a great number of missed payments or allowed accounts to become delinquent. Next, your debt-to-income ratio should be relatively low, meaning your outstanding debt shouldn’t be larger than - or even close to - your gross income. Lastly, the age of your credit history is considered, and the longer the better, so don’t suddenly open a new credit line right before applying for a loan.


Capacity concerns your financial ability to pay off a loan. It isn’t enough to have recently landed a nice job, as most creditors look for at least two years of steadfast employment. They’re looking for a steady stream of income to be able to get paid back with.


Seeing that you have a sizable amount of liquid capital is a green flag. Lenders like to see that you’ll easily be able to afford monthly payments from your bank account if necessary. It’s also wise to slowly accumulate these funds to look reliable, so it doesn’t look like you simply deposited a one-time gift into the account.


This C is out of your control. This concerns the current state of the economy weighed up against what you’re planning to use the loan for. At the heart, lenders would like to see the risk involved in the loan being relatively low, with a great chance that they’ll be able to recoup their investment.


Collateral represents the amount that the investors can take from you if you are unable to keep up the loan repayment. For example, for a mortgage, the lenders would look at the value of the property in the bank’s hands. This C is also out of your control, but it’s important to keep in mind.
These five concepts are instrumental in the consideration of a loan. Lenders heavily weigh the individual aspects stacked up, and make a decision based on a healthy standing in each category. If you keep them at the back of your mind and tweak your financial standings accordingly, you’ll be more likely to get approved in the future.

By: Tim Milles

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