When you submit a loan application, the lender has asked for a lot of information, and they’ll get even more from a credit check, but what exactly are they looking for? There are many different factors that lenders consider when determining your eligibility for a loan. If you’re short on cash and may need a short-term loan soon, like a payday loan or a pawn loan, you’ll find some valuable information here. Let’s get into it.
With traditional lending, one of the most important factors in the application process is your credit score and credit history. Lenders will look at your credit history to evaluate the likelihood that you’ll repay the loan as agreed. A good credit score indicates a more positive credit history, which not only increases the chances of approval but the chances that you’ll be offered satisfactory interest rates and other terms. Many short-term lenders, like Lending Bear, will not run your credit score. They will, however, verify your identity through a credit bureau.
Another significant factor when looking at your loan application is your employment history and income record. Lenders want to see that you not only make enough money to repay the loan but that your employment is steady enough to indicate a stable life. To prove this, you’ll often need to show recent pay stubs or a bank statement from the account where your check is deposited.
Your debt-to-income (DTI) ratio is a measure of your monthly debt obligations, relative to your gross income. Lenders use the DTI metric to evaluate their ability to effectively manage existing debt while handling an additional monthly loan payment. Lower DTIs lead to higher approval odds.
Collateral is incredibly important when it comes to lending, and for larger loans like auto loans or mortgages, the asset the loan is issued for secures the loan. But collateral is also important when considering a pawn loan since the lender will require collateral in the form of valuable items. This collateral serves as security for the loan since the lender can sell the item or items if the borrower defaults on the loan agreement. Common collateral items include jewelry, tools, electronics, and collectibles.
Another factor that lenders consider when looking at your loan application is how much you’re asking to borrow, and the repayment terms. If they don’t feel the terms align with your current financial situation, they will likely decline the loan. If they feel that the new obligation won’t lead to overstraining your budget, you may find approval. Make sure you’re realistic about the amount you request, and make sure it matches your repayment capacity.
Finally, loan regulations vary from state to state, and lenders need to ensure that they adhere to these regulations, or they could risk losing their lending license in that state. Depending on the state, there may be loan amount caps, interest rate caps, or even standardized loan terms.
As you can see, there is a lot that goes into reviewing a conventional loan application. Lenders pay close attention to your employment, income, even your ongoing level of debt, and more. But many people aren’t able to pass some of these stringent requirements, which means short-term loans, like payday loans or pawn loans may be better options. These loans don’t need any kind of credit pull and can be approved in just minutes in many cases. Reach out to Lending Bear for more information, or to get started with an online loan application.