What Are the Determinants for A Loan Approval?
Loans have been a long-standing way of getting large amounts of money for a specific purpose. Regardless of how well you are doing there is a time when obtaining a loan is necessary. It can be for different purposes such as or education, to buy and build a land or house, medical purposes and even to go abroad.
However, while getting a loan can be the answer to your immediate need it comes with a lot of responsibility as paying it back can become a daunting task. Before your loan is approved there is a criterion that the bank will need to ensure you fill. A set of determinants that tell the bank that your need for a loan is worthy and paying it back will not be an issue. Here are some of the determinants.
Your credit scores
The value of a credit score is much tougher in certain countries than in others, however wherever you are borrowing from your credit score is vital. What exactly is a credit score though? If you have credit cards, bank accounts in various banks and have always been prompt in your payments this shows that you are a reliable person to the bank. Meaning that the bank will be sure you are able to pay back your loan within the given time frame.
Your marital and employment status
Just like mentioned above your reliability is not only dependent on your credit score but also on your age, marital and employment status. If you are younger sometimes the chances of your loan being approved are low, in this case your reason for the loan along with adequate documentation to prove that you are eligible will need to be shown.
On the other hand, your employment status can be a huge justification too. Unemployed people or those who are not earning within a certain criterion will need to show additional documentation and even other forms of confirmation to ensure you are reliable. However, if you have Centrelink benefits then you are eligible for Centrelink loans. This too will have a criterion but are easier to obtain than others.
A collateral is an asset that you will have to show your bank they can have in the event you are unable to pay back your loan. This asset has to be the same of a higher value than your borrowing amount. It can be a house, vehicle or even a fixed deposit.
If you are unable to pay back your loan the bank will take ownership of the asset as a settlement. This can quite risky and therefore should be well considered beforehand. If this too does not work out the loan amount may have to be paid by the next in kin, which will have to be mentioned before the loan confirmation.
Loans are extremely useful but can be huge financial burdens when not planned for accordingly so therefore must be obtained with prior consideration.