5 Questions Lenders Will Ask You Before Approving A Loan
Before they give you a loan, lenders need to know some things about you. So, naturally, they might ask you questions, some of which might be more direct than others.
What you should understand is that this is simply necessary and normal at this stage of the process. Just as you want to know about all of the loan terms, they want to know everything about your credit history, income and so on. Your answers to these questions will help them decide if you are reliable and if they can trust you. After all, it is their money that you are borrowing.
It is essential that you honestly answer all their questions so as to immediately establish a relationship full of trust and respect. If you start off on the right foot, everything will go much more smoothly and if you pay back the loan on time, they will probably have a better deal for you next time you need a loan.
Without further ado, here is a list of the most common questions your lender will ask you.
Questions related to your job and income.
These might include questions such as:
Where do you currently work?
How long have you been working at your current company?
How much money do you earn a month (before taxes)?
Do you have other sources of income?
It is more than obvious why they need to find out these things ‒ to know if you are able to repay the loan. For this reason, they will consider your current job and position, the company where you work, your monthly income before taxes and other similar factors. Lenders might also request some supporting documents like bank statements, pay stubs and a VOE (verification of employment) form.
Questions related to your cash reserves and assets.
You can expect the following questions:
How much money do you have on your bank account at the moment?
Is that enough to cover your down payment and closing costs (if there are any)?
Do you have enough money to cover at least the first two monthly payments?
How long have the funds been in your bank account?
Apart from your income, your current assets also play an important role in determining how big a loan you can actually afford. Also, if you are applying for a mortgage loan, then the lender needs to know if you have any money in the bank and if yes, if it is enough to cover the down payment and closing costs. Furthermore, the lender will ask for account statements and additional documents in order to verify how big your assets and cash reserves are.
Questions related to your current debt.
Are there any current credit card accounts you have and how many there are?
What are the limits and balances of each credit card?
Do you have a car loan and if yes, how much is it? How many payments do you have left?
Are there any recurring debts like a personal or student loan?
Do you pay for child support or alimony?
What will your total DTI (debt-to-income) ratio be with this loan?
Now, this is a tricky part. If you currently have too much debt, the lender might reject you. It is important for them to know how much money you spend each month to pay off your debt. Again, the lender will ask you to provide supporting documents.
Questions related to your credit and borrowing history.
What is your credit score at the moment?
Have you had a loan in the past?
Did you make all payments on time and in full? Have you ever missed any payment?
Have you ever defaulted or filed for bankruptcy?
How well have you repaid your debts so far?
Even though lenders can find most of this information in your credit report, they might ask you these or similar questions. If your credit history is not stellar, they will not give you a loan so easily. In case they see you as a risky borrower, you won’t get approved. But don’t fear, for there are still ways to get a personal loan for bad credit. However, one of the best ways to get a loan is to have a good credit history.
What do you need the money for?
This is maybe the most important question, so we have saved it for the very end of our list. Depending on why you need the loan, the lender will know where to go from there. It is not the same if you need a business loan, want to buy a car, renovate your house or consolidate debt. That is why you need to tell your lender why you are taking the loan. This can significantly affect the terms of the loan and many other things, including whether or not you will get approved.
In order to get a loan, you need to establish a good relationship with your lender. And to form this relationship, both you and your lender have to have a clear picture about each other right from the start.
Therefore, even though some of the questions you will be asked might be personal, you need to understand that they are necessary. Whether they are related to your income, credit history, cash reserves or current debt, make sure you are honest to your lender since they can and will check most of that information. Also, prepare all of the documents that your lender requires.
Finally, don’t forget to ask your lender all questions you have for them. Ask them about loan terms, clarify misunderstandings (if there are any), read the fine print before you sign the loan contract and check if you can get better terms with that or other lenders.
If your approach to loans and lenders is responsible and honest, you will definitely find a great loan that will suit your needs.