Everyone has varying reasons for applying for loans. Thanks to the many types of loans made available these days, you can apply for one that will best suit your needs. If you need to buy a new house, you can get a mortgage. For individuals wanting to buy a new car, they can apply for an auto loan. For emergency expenses, you can choose between a personal loan and cash advance loan, to name a few.
While loans come with interest rates, they can help realize your dreams. Most loan applications have basic principles that each lender will focus on. Whether you need immediate funding or not, it helps that you try to make yourself qualified for a loan. You can never tell when you will need to apply for a mortgage, a new car loan, or even other types of consumer loans.
But what are the things most lenders will check once you apply for a loan? The following are the basic requirements you’ll need to meet to get a loan approval:
Good credit score and history
You have heard this before, and you will be reminded again now that credit scores and history matter when it comes to the loan application. Your lender will check your credit to see how good or bad of a payer you are. In the Philippines, consumer loan companies hire alternative credit scoring companies to check the creditworthiness of their borrowers. If you have good credit, you’ll have a higher chance of getting approved for a loan with better rates and terms. For those with bad credit, they will either get rejected for the loan or will have to try and compensate just to get approved.
Of course, lenders will check if you have enough income to pay for your monthly expenses plus your loan. They will check your employment history and average monthly income. Most lenders will want their borrowers to have at least two years worth of employment. This should be under the same company or the same industry. If you decide to change careers, talk to your lender first, as they can help advise you with the best course of action.
Regular deposit history
One good way to get approved for a loan is by maintaining a savings account. If you can prove to your lender that you can make regular deposits in your savings account, this will show that you are frugal and financially responsible. So make sure that before you even apply for a loan, you already have a savings account to back you up.
Maintain good DTI ratio
Your debt-to-income (DTI) ratio is another factor lenders will check when you apply for any loan. This ratio refers to your total percentage of monthly income that goes directly to your debt payments. Many banks and financial institutions will be willing to approve a loan if you have a low DTI ratio. This is because borrowers with low DTI figures are generally more successful payers.
Loans can be of great help in case of emergency expenses. These can also aid in helping you achieve many financial goals. If you think that you need to apply for a loan, make sure to check your finances first. Even if you don’t need an immediate loan, it pays to already know that you can qualify in case there are changes in your future plans.