Depending on what kind of loan you are seeking, there are various things you can do to make sure your application is successful. For example, personal loans may carry certain requirements that are pertinent to the kind of credit you are seeking whereas a mortgage loan is something altogether different. With that said, a mortgage loan can be the easier of the two simply because the property is the collateral that secures the loan whereas a personal loan doesn’t always require collateral.
Some lenders may require something of equal value to be pledged in the event of nonpayment, but many lenders underwriting personal loans have no such stipulation. If you are looking for ways to ensure your loan is successful, chances are you are looking at personal loans. Here are some ways to ensure your application meets with success.
Why a Personal Loan?
Let’s begin with the first thing a lender will want to discover. They will undoubtedly want to know the purpose of the loan. What will you be doing with the money? Actually, one of the main reasons consumers are interested in securing a personal loan is for debt consolidation. If you are wondering, “What is the benefit of obtaining a personal loan?” visit meettally.com. The answer just might be they tend to carry lower interest rates than most credit cards. Tally has also created an innovative app in an effort to help the average consumer make sense of a financial industry that is intentionally complex. This app helps you determine how much you can save on interest alone. Once again, reducing the amount of interest and consequently a reduction in monthly repayments are probably the main reasons why you are looking at personal loans. What is the benefit of obtaining a personal loan? Quite simply, you are not being eaten alive by interest rates!
Understand Factors That Influence Creditworthiness
Before you actually start applying for personal loans, it is imperative to understand what lenders look at to determine your creditworthiness. For example, the amount of credit you have outstanding weighed against the length of time those accounts have been active might not work in your favor. According to the Forbes ADVISOR, factors that lenders look at to establish your creditworthiness are called the “5 C’s.” These are listed as:
- Capacity
- Capital
- Conditions
- Collateral
- Character
Capacity is almost self-explanatory. It simply refers to how lenders anticipate your capacity to repay the loan, making those payments timely until the loan is paid in full. Capital refers to your net worth. This could be your interest in a property you have mortgaged, or it could be any items of value such as jewelry or even automobiles.
When it comes to the third “C,” it can be a bit confusing. Perhaps the best way to explain this is by looking at what happened to so many consumers during the early days of the pandemic. Lenders look at external risk factors that could have a negative impact on your ability to repay the loan. During the shutdowns, many companies went under. Workers didn’t have jobs to return to through no fault of theirs. Those were external factors, conditions, that could affect repayment.
As for the fourth C, collateral was already discussed but condition number five is one many prospective borrowers are unaware of. Have you ever wondered why lenders ask for personal as well as employment references? Not only do they want to have a way to contact you if you’ve missed payments, but they want to also assess your moral character. Also, lenders will look at your credit history as a gauge of your sense of ethics and moral character.
Credit Scores and Credit Reports
Both of these are considered when a lender looks at your creditworthiness, and there is a very real difference in how each will affect a lender’s ultimate decision. Where it can get a little confusing is because of the three main credit bureau reporting agencies; not all lenders check the same bureaus. Some might seek a credit score and/or credit report from Transunion while others may deal with Equifax or Experian. Sometimes you can discover which of the three they use, but sometimes that information isn’t readily transparent.
Here, it gets a little trickier yet! If you are applying for a personal loan for credit card debt consolidation, your score may be reduced substantially by the amount of your outstanding debt ratio. At this point, the lender will then compare that to your credit report which goes into detail regarding how that credit bureau rated you with the score you now carry. They will look at things like:
- Age of debt
- Payments consistently paid on time
- Ratio of debt to credit limit
- Type of outstanding debt
- Outstanding amounts in debt collection
And also, criminal history may be a factor as well.
Steps You Can Take
If you have a significant amount of outstanding debt, you may want to pay some of that down prior to submitting personal loan applications. And, while we’re on the subject of applications, there’s something else you should know! Every time a lender runs your credit you are probably being hit with what is called a ‘hard mark’ and this will lower your score by a few points. These marks generally fall off in a year or two, unlike unpaid debt that can stay on your report for a period of seven to 10 years. The point being made here is to be selective when submitting personal loan applications. Lenders won’t look favorably on a dozen hard hits and no new loans!
Also, if you feel your credit report contains an entry on unsettled debt collections, you have the legal right to contest it. Many consumers have had their credit score and report repaired just by contesting erroneous entries on their reports. These will fall off in those seven to 10 years, but can you wait that long for a personal loan? Probably not. In the meantime, the above information should help you understand how to make sure your loan application is successful. Good luck, and happy hunting!
