You know your credit history matters when you apply for a loan, but that's not the only factor banks use to determine your loan eligibility. GOBankingRates lists a few other considerations they make when you apply.
Whether it's a mortgage, a car loan, or a personal loan, there's a handful of criteria banks use to decide whether to lend you money. As GoBankingRates (GBR) explains, when you apply for a personal loan, lenders might be a little pickier about your eligibility because there's no collateral (like a car or a house) to back you up if you default.
Either way, aside from your credit history, here are a few other things lenders consider when deciding to approve you for a loan:
- Your income: Lenders prefer your monthly debt payments to be less than 43 per cent of your income, GBR says.
- Your employment history: Ideally, you'll have a history of stable employment that proves you have income to pay off the debt.
- Repayment history: Lenders may look at your repayment activity. If you have any unpaid debts or late payments, that could affect your eligibility.
- Equated Monthly Instalment: This is what your monthly payment has to be in order to pay off your loan in a certain amount of time. Combined with the other factors, it will tell the lender (and you) if you can afford to pay off the loan in time.
There may be individual requirements, too, like whether or not you have a history with the bank that's lending the money. Either way, before you take on a loan, it helps to know how the process works. For more detail on each area, head to GBR's full post at the link below.
How Do Banks Decide My Personal Loan Eligibility? [GoBankingRates]