What Do Lenders Look for When Applying for a Personal Loan?


Once you decide to get a loan, the next step is applying for that loan and hopefully getting approved. Not many people know exactly what lenders look for on an application. Learning what makes you an ideal candidate for a loan will improve your chances of getting approved. Let’s take a look!

Credit Score and Credit History

One of the first major things a lender will look at is your credit score and your credit history. Your credit scored is a snap shot of your credit history that is put into numerical form. Every transaction, loan, and credit card you ever use is taken into consideration to get this score. Some lenders will just look at your credit score alone, basing their decisions off this number. Others will take your entire credit history into consideration.

A lender who looks at your full history will check for delinquent accounts, history of bankruptcy, any unpaid collection accounts you may have. These items may not necessarily be deal breakers to a lender but they can affect your interest rate. Before you apply for personal loans, check your credit score and credit history and know where you stand. When you are aware of your credit status, you may be able to figure out on your own if you will be approved for a loan.

Collateral Value

If you are taking out a personal loan that uses collateral, the lender may give you a better deal based on the value of the collateral. The more you are willing to offer for the loan, the more flexible the lender can be. They may give you a lower interest rate, better loan terms or a bigger loan amount. However, be realistic about the collateral you are offering. You want to be sure that you pay the loan in a timely manner if it is something you want to get back!

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Liquid Assets

If you have a lot of cash on hand or assets that you can easily turn into cash, a lender may be more lenient. For example, if you have a good amount of money invested in stocks, that could easily be sold for cash if you ever needed to come up with money to pay the loan. The more liquid assets you have, the less risky you are to a lender. Therefore, you may be able to get a better loan.

Debt to Income Ratio

A lender could look at your debt to income ratio in order to determine if you qualify for a loan. This means that they look at your monthly income in comparison to your monthly bills. Can you truly afford the loan payment? Is your income enough to cover the debts you already have? This is an essential point that a lender will consider when deciding to loan you the money.

Every loan out there will require different qualifications and each lender will look at different things to approve you for a personal loan. However, these four factors are the biggest that a lender may consider when you apply for a loan. Know your financial history and if you can afford the loan before you apply!