Considering taking a loan is a big financial step that you need to be prepared for. Regardless of your loan type, whether it’s a car loan, home loan, or a personal loan, there are some factors that banks take into account in order to determine your eligibility.
You need to bear in mind that different banks and lenders have varying standards when it comes to determining your eligibility for a loan.
However, there are some general factors to help you know if you qualify. Here are some of them.
General Criteria
There are some general qualifications required for any type of loan that you need to meet the criteria for. For starters, you must be above the legal age of 18 years or older. This factor for lenders ensures that you still have an adequate number of remaining working years.
The majority of lenders prefer people whose age lies between the range of 23 and 58 years. Also, you must be under the age of 65 to qualify for a loan. Secondly, holding American citizenship or permanent residency is a must. After that come the income requirements you have to meet in order to be eligible for obtaining the loan with the sum of money you want.
Other than having a perfect credit score, you cannot be going through bankruptcy when applying for a loan. Finally, a stable regular income is required by banks to ensure that you are financially stable.
Credit Score
Your credit score can influence many financial decisions in your life because of how important it is to lenders. Maintaining a good credit score isn’t hard if you’re still starting fresh. Paying bills on time is enough to increase your credit rating.
If you’ve taken out loans in the past and paid it in full in a punctual manner, your credit score increases. You’ll want to avoid defaulting on loans or missing payments if you don’t want your credit score to plunge.
If you’re filing for a business loan, the lender may ensure that the collateral is still seizable in the case of the borrower’s default or bankruptcy by filing a UCC report. You need to take into consideration that these reports may sometimes restrict you from obtaining higher forms of financing for your business. To be on the safe side, ensure that your business credit report has no active UCC filings before you apply for financing options.
Work Experience
Most lenders and banks prefer people with more working experience as they are considered to have a more stable financial future compared to others who recently started working. The latter might be at the risk of losing their job, especially if they are not good at it.
The minimum required number of working years usually vary with different lenders and banks. Other factors that might affect the required minimum experience are your occupation and the amount of money you want.
For example, salaried professionals need at least 2 years of experience while business owners must have at least 5 years in their current business line.
Debt-to-Income Ratio
Lenders like to go above and beyond to assure that the risk they are taking when they’re giving out a loan is accurately assessed. Your debt-to-income ratio measures your monthly obligations against the net income you get per month.
To stay on the safe side, lenders prefer borrowers who have low debt-to-income ratios. Your ratio shouldn’t go beyond 43% if you want mortgage lenders to accept your loan request. It’s not impossible to get a loan with a higher ratio if you have a credit score. Check out this website if you need a bankruptcy attorney.
Collateral Value
Whether it’s a personal loan or a business loan, as long as it’s secured, the value of the collateral you put in can influence your loan eligibility. A loan’s collateral is an asset that the borrower secures their loan with, and the lender has the power to seize the asset if the borrower defaults on a loan.
Naturally, secured loans carry less risk from the perspective of the lender, making the interest rates considerably lower than loans that are unsecured. The value of the collateral will determine the amount of the loan.
For example, if you put in an asset worth $100,000 according to the current market prices as collateral, the lender’s maximum loan amount that they can give you is of the same value as the collaterals.
Regardless of whether it’s a secured or unsecured loan, with fixed or variable rates, and the amount of money you are seeking, you still have to meet the general qualifications lenders put.
Before applying for a loan, make sure that you meet the criteria. Don’t forget to compare different requirements, rates, and types in order to decide the right loan for your needs.
