How Do Lenders Determine If I’m a Candidate for Financing?

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The day will come when you need some type of financing. Before you submit applications to any lender, it pays to have an idea of what qualification must be met. Since those will vary somewhat from one lender to the next, be prepared to provide different types of information. What follows are examples of what most lenders will look at closely as they consider the idea of providing the financing that you seek.


Your Monthly Income


Just about every type of lender requires applicants to provide details about their monthly income. That’s because applicants are expected to receive whatever minimum amount of income that the lender believes will allow the applicant to manage the loan responsibly.


Your income may be from a job, a monthly allowance from a trust fund, or any other legitimate source the provides consistent disbursements. Depending on the amount and the nature of your monthly income, partners like Smarter Loans can identify lenders who are most likely to work with you.


Your Current Credit Score


Just as lenders often require a minimum amount of monthly income, they also expect your credit score to be above a certain number. It’s not unusual for lenders to take one look at the score obtained from one or more of the major credit reporting agencies and stop the process if the score is under that minimum.


Since you won’t know in advance if a lender pulls reports from one or all three of those major agencies, it pays to obtain free copies in advance. You’ll find that partners like Borrowell will help you secures those reports quickly.


Your Credit History


Assuming your income and credit score are in line with the lenders’s criteria, many will now look at the details of your credit history. That includes reading details submitted to the credit bureaus about whether or not you’re current on a active debt, if you’ve ever been late with a payment, and any other notes that may appear in the report details.


Take that as another reason to obtain copies of your credit reports and go over them carefully. Doing so prepares you to respond to any questions a lender may have about a specific comment. It also gives you a chance to spot incorrect data and take steps necessary to remove or update those details before you apply for a loan.


Your Debt to Income Ratio


Do you already have outstanding debt? What percentage of your monthly income goes to cover payments to those creditors? A lender will look at the relationship between the money coming in and the debts you pay on each month. The goal is to make sure you can continue to remain current on all debts and still remit your loan payment on time.


Assets That Can Serve as Collateral


Some loans will require collateral as part of the arrangement. Pledging an asset means that if you default on the loan, the lender has the right to seize the asset, sell it to cover the remaining balance plus any recovery costs, and then forward whatever remains to you. The type of asset will vary based on what the lender considers acceptable.


For example, home equity loans typically require pledging your home’s equity as security for the loan. If you default on the loan, the lender could petition to have the property sold, settle your outstanding balance, and leave you with the remaining cash to start over.


The Down Payment You Can Provide


When certain types of loans, you need to confirm that there’s already money in hand to partially cover the intended purchase. This is not unusual with auto loans or mortgages. By having at least the minimum down payment required by the lender, you keep the amount borrowed under the market value of the purchased item. Working with a partner like Smarter Loans helps you find lenders who have minimum requirements for down payments.


Keep in mind there may be additional requirements based on the type of loan you’re seeking. That would be true of most kinds of business loans. Research in advance and understand what lenders will want to know. Doing so increases the odds of finding the right lender and being prepared to provide whatever information is needed to obtain the desired loan.

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