As nice as it would be to always have the money you need to cover your finances, it’s not always possible. There are things you may want or need like a house or a car that might cost more than you have up front. There are also things that could arise without notice, that will require a lot more money than you have saved up. In matters like these, it’s not uncommon to borrow the cash by applying for a loan. Loans provide you with the cash upfront to cover the cost of things you may want or need allowing you time to repay in small, affordable, amounts.
There are a lot of different loans out there, however, some of the most common are mortgages, auto loans, personal loans, and business loans. If you’re ever in a jam, you’ll be required to meet certain eligibility requirements to get approved. Some of those things are listed below:
Good Credit
Your credit history serves as a window for lenders into your finances. It provides some details on how well you manage your money. A good credit history reflects positively on you and will help you get favor with lenders. A good credit report should show a low debt to income ratio, a positive payment history, and diverse accounts in good standing. This shows that you’re not too much of a risk and have a high likelihood of repaying the loan in a timely fashion.
Someone with poor credit, however, is a risk. More debt than income, past due balances, and collection accounts says to lenders that if they give you their money, there’s a chance they won’t get it back on time. If you are applying for a business, home, or auto loan, good credit is almost always a must. Fortunately, if you’re looking for a personal loan but have less than perfect credit, institutions exist which will still give you a chance. For example, approval for a Maxlend payday loan alternative for bad credit is based more on income than credit history. They are short-term personal loans, but can really come in handy when you need quick cash.
Income
There’s no way around this one, and this is a criterion for all loan types. You must have income in order to be approved for a loan. Each institution will vary on how much income you need to have, however, it needs to be reasonable enough to cover the cost of the loan and your existing debt and expenses. Your income will need to be verified, either through your employer or by providing a copy of a paystub or bank statement.
If you’re applying for a home, business, or auto loan you must have substantial income and will likely be required to list your existing debts and expenses to ensure that your debt to income ratio isn’t too high for the lender. Depending on which type of loan you’re applying for, you could have to pull income tax filings as well.
Collateral
Secured loans are loans that require the applicants to have assets that can be used as collateral in order to get approved. Should you fall short on repaying your loan, the lenders can reduce their losses by repossessing or putting a lien on your assets. If you were applying for a mortgage, for instance, the home would be used as collateral. If you are seriously delinquent on mortgage payments, the bank can then foreclose on the home and try to sell it to recoup some of the loss.
While collateral is a given for a mortgage or auto loan, there are unsecured personal loans that don’t require you to have assets. Though you may pay a bit more in interest, have shorter loan terms, and have a limited borrowing amount, they are ideal for those who don’t want to put their belongings on the chopping block.
Whether you get approved for a loan or not will greatly depend on the type of loan you’re applying for, the lender you choose, and their eligibility requirements. You’ll need to make sure you have documentation to back everything up including a copy of bank statements, pay stubs, income taxes, business reports, and more. To get prepared, you should have a look at your credit report, clean up any discrepancies, and gather all documentation so you can be prepared for the types of questions lenders may have for you.
