How to qualify for a loan?
No matter how robust our financial situation is, there would come a point that we would need to inject capital for various reasons such as for business, education or personal. To fund the shortfall, we secure a loan from a reputable bank or a non-banking financial institution.
Nowadays, there are different types of loans available and personal loans, home loans, business loans, and auto loans are the most sought-after. These loans are designed to provide for our daily necessities but before a loan is granted, it comes with various requirements first. Here’s a few tips on how to get qualified for a loan.
Prepare your documents
Before you can get approved for any kind of loan, you must provide certain documents to the lender. These documents are proof of your personal and financial information. Requirements may vary from one lender to another, but these are the usual documents that lenders ask from the borrower, on top of the application form.
- Proof of identity. This is a mandatory requirement every lender asks. A valid ID helps the bank identify the borrower and perform background checks on its applicants. For home and auto loans, you may also need to prepare Income Tax Returns.
- Proof of residence. A proof of your living situation helps a lender determine the stability and security of your lifestyle is. Usually, you can use the utility bill, lease or rental agreement, or a voter registration card for this.
Know your credit score and history
Primarily based on a credit report, a credit score is an analysis of a person’s creditworthiness. Many lenders prioritize borrowers with good or excellent credit scores equivalent to 690 and above.
Your credit score is a major factor in the amount of loan that can be granted, as well as the interest rate applicable. The minimum credit score required varies from one lender to another. To secure a business loan, borrower must have a credit score of at least 700. To qualify for , you might need a credit score of at least 600. A credit score of 750 is very good while 800 and above is considered excellent. However, some lenders may still accept the application of people with bad credit but with lower amounts, tighter conditions, and higher interest rates.
Have a steady source of income
Your credit score and credit history serve as the lender’s basis on how you’ve come along, but it is also important for them to know where you’re heading to, therefore your current and future source of income also matter.
Lenders prefer those who have a steady employment, haven’t changed jobs too recently, and have no gaps in their employment history. For business owners, proof that your business is doing well and good might be requested by the lender.
Get ready with your co-maker or guarantor
A guarantor is often required by the lender especially if you are planning to borrow a huge amount of money. A guarantor agrees to pay a borrower’s debt if the borrower was not able to fulfill the loan obligations.
A co-applicant with a good credit score is an advantage. If you want to borrow larger amounts and for longer tenures, having your parent, spouse or sibling as a co-applicant is a good idea.
