The first few steps of applying for a loan can be a bit challenging. Not only will you need to fill out a multitude of different documents and ask around for a history of your financial capabilities, but you’re also looking for ways to maximize your chances of getting your loan approved.
The last thing that you’ll want is to get your loan denied when you need it for necessities. The good news here is that many lenders won’t just deny your loan application because your credit score is low. Although credit score is a major influencer that will be a deciding factor for loans, some factors come into play. Here’s what you’ll need to know.
Your Monthly Income
One of the most crucial factors that can affect your chance of getting a loan other than your credit score is your monthly income. Although you might have a good credit score that can prove that you’re consistent with how you manage your debt and payment schemes, that doesn’t mean that it’s the only thing that many loan-issuing agencies will keep in mind.
To understand this, you’ll need first to put yourself in the same position as a lender: would you lend someone large sums of money without knowing if they can pay you back? Of course not. Many lenders don’t want to issue loans to individuals who don’t necessarily have the financial means to make timely payments. That said, when you apply for a loan, you’ll need to be prepared over the fact that many lenders will be concerned with your financial situation and how much you’ll be earning in a month.
This will usually come in the form of the debt-to-income ratio, which is prevalently used by many companies worldwide in approving loans. For instance, if you’re going to take up a loan that would require around $1,200 while your total monthly income is around $1,800, then that’s around 66% of your monthly income.
This is a red flag for a lender since this means that you’ll be struggling to pay off the debt. Although it is possible to pay off your debt with $1,800, this will still have a major impact on your lifestyle as well as the likelihood of approval. The general rule of thumb when it comes to your DTI is that it should be around 36% since this is the most optimal ratio.
Having a hard time getting a loan due to your debt-to-income ratio and other factors affecting your credit score? You won’t have to worry about computing or weighing in on these factors since some considerate companies have a wide range of auto loan rates that can be tailored to your needs and wants.
Your Career History
Another important factor that you’ll need to consider is employment. Concerning the previous section, income will usually come from employment. Although you might be quite confident in getting a loan since you’re earning around $4,000 to $5,000 in a month from a high-paying job, it’s still important to consider the consistency of your work and the current situation. Have you only started a few months ago, or are you already a regular in the workplace?
No worries, lenders won’t call up your employers and ask about your professional background and history. Most of the time, they’ll look through your employment records. If they know that you’ve been doing the job consistently (for at least a year or two), then there’s a good chance that you’ll have your loan approved since you’ve been doing it for quite some time.
Remember: just because you got a promotion and you’ve gotten a significant increase in your monthly compensation doesn’t necessarily translate to being reliable. Paying off debt is less about having a large income in a short amount of time and more about being timely and consistent in the long term.
Another important thing to consider when it comes to the amount of income you have accumulated in the span of 24 months. This means that if you’ve made around $50,000 in the span of three years in the company, but you had only gotten a significant raise last month, there’s a good chance that many of the lenders will only look at the $50,000 that you’ve accumulated.
Your Collateral and the Loan
Lastly, it’s crucial to note that many factors can count against you. As to what we have discussed, limited financial power, low credit score, and changes to your employment history are just some things you’ll need to consider. While many lenders won’t necessarily take all of this into consideration, some institutions can offer easier loans than usual. Secured loans will require collateral, which will come in the form of other assets (such as property and cars) that can guarantee that the loan will be paid in one way or another.
As you can see, there are many factors that you’ll need to consider when it comes to getting a loan other than your credit score. Although credit score might play an integral role in getting your loan approved, lenders want to paint a more comprehensive picture of your financial capabilities. Although these are crucial factors, it’s important to remember that each type of financial institution will have its own way of weighing in on applications.
