How to Get Your Loan Application Approved

Buying your car or home is often done using funds borrowed from a bank, financing company or credit institution in what is known as a loan. It generally starts with an application in which you provide all the details that the lender will evaluate.

After receiving your application, the lender will conduct a credit investigation using your credit report and other records. While lenders may use different criteria and may not attach the same weight for each, they often use similar guidelines when evaluating applications.

Capacity to pay: Lenders want to know if you can pay them back by reviewing your employment history or business records. Of interest to them are your monthly earnings, future earning potential and the length of your employment or lifetime of your business.

Credit history: Your past obligations and how you paid them off will tell lenders how you generally manage your responsibilities. They will not only look at how much you owe but also how prompt you are when paying your bills. Paying your bills on time all the time makes a good credit history. If you had some trouble meeting your debts in the past, you can still improve your credit history by making it a habit to pay them on or by their due date.

Character: Even with sufficient income and collateral to support your credit application, a history of lawsuits, bounced checks or bankruptcies projects an impression of financial irresponsibility and often leads to a denial of your application. Improving a character impression may take time but may still be improved if you consistently stay on top of your obligations.

Collateral: Also known as security, collateral usually in the form of real estate or other valuable asset, serves as a lender’s guaranty that the money it lends will be returned. The value of your collateral will be assessed and weighed against the amount you intend to borrow. If your application is denied for insufficient collateral, try offering another valuable asset to the lender.

Poor credit report: Obtain a copy of your credit report and verify that the information found by the lender is accurate.

Insufficient income: You may be declined credit if your income doesn’t meet the lender’s income requirements or if you don’t have stable income.

Too much debt: A high debt-to-income ratio can predict difficulty in paying off your debts. If you have credit cards you don’t use, cancel them because inactive cards are still considered potential debt and can raise your debt-to-income ratio.

A denied loan application shouldn’t discourage you. You can always apply with another lender, improve your financial indicators by managing your existing obligations or offer to pay a higher down-payment to reduce the amount you intend to borrow.