Whether you’re applying for a loan for your business or for personal use, you want to ensure you’re putting your best foot forward so your loan can get approved right away. This applies to bank loans that are worth millions, as well as other financial institutions offering easy online loans with quick approvals for smaller amounts. However, it can be challenging to present yourself as credible if you don’t know what lenders are looking for in their borrowers.

Fortunately, there are a few things you can do to prepare to increase your chances of getting approved for a loan. Here are some key factors most lenders consider before they approve a loan:

Your Credit History

Almost all lenders take a look at your credit history when considering your loan application. Your credit history is essentially the record of how you manage credit and make payments over time. It consists of information provided by lenders that have extended credit to you, as well as service providers you’ve subscribed to. As much as possible, you want to have a healthy credit history because lenders take this as a sign that you’ll be able to pay what you borrowed. 

Aside from your credit history, lenders also refer to your credit score to determine whether or not they will approve your loan. Your credit score is a numeric value that ranges between 300 and 850 and is based on your credit history. Lenders use your credit score as a risk indicator. If you have a high score between 700 to 800, this means that you are a low-risk borrower and you’ll likely be able to pay your loan. That said, while many lenders utilize credit scores when making lending decisions, each loan provider follows its own criteria. Usually, their decision will depend on the risk they find acceptable for a certain credit product.

Your Income

Another factor lenders take a look at before approving your loan is your income or employment record. Naturally, lenders want to know whether or not you can manage to settle your payments on time. To do this, they use your income as a basis of your ability to repay. In addition, lenders might also require a minimum income based on the amount you want to borrow. If you’re borrowing a large amount of money, you should ideally have a high enough income so lenders would feel confident in your capability to keep up with the payments.

In addition to your income, some lenders also factor in your employment history. If you’ve been working for an established company for a long time, you might get approved for bank loans more easily because you have a stable flow of income. If you only work part-time or are self-employed, try applying for smaller loans from online lenders.  

Collateral

Depending on the type of loan you apply for, the lender might ask you to pledge an asset as collateral. This type of loan is called a secured loan.  Once evaluated, the value of your collateral can affect your loan application. In essence, borrowing an amount more than the value of your collateral might lessen your chances of getting approved. That’s because the bank wants to ensure they can recover the money you borrow if you can’t keep up with the payments. On the other hand, your loan will likely be approved if you’re borrowing an amount less than the value of your collateral.

The opposite of a secured loan is an unsecured loan. It doesn’t need collateral and usually come in the form of fast-approval cash loans in smaller amounts.

Liquid Assets

Aside from collateral, lenders might also evaluate your liquid assets. This refers to the cash in your savings or assets that you can easily turn into cash. The reason many lenders consider your liquid assets is reassurance. If you have liquid assets, then you would still have the capacity to pay even if you lose your main source of income or experience a similar setback.

That said, if you don’t have a lot of liquid assets, it doesn’t necessarily mean you won’t get approved for a loan. It might just increase the interest rate you need to pay. This is often the case with unsecured personal cash loans.

The Loan Terms

While your financial capability and credit history are huge factors in getting approved for a loan, the loan term you want can also affect your loan application status. Generally, lenders are more comfortable lending money for a shorter period because they want their money back ASAP so it can be lent to other customers. At the same time, a shorter loan term will be easier to manage because you’ll be debt-free sooner. However, a shorter loan term means a higher monthly payment. As such, you must carefully assess which loan term is best for you before proceeding with the application.

 

When lenders review your loan application, their decision is based on several factors, some of which are discussed here. Make sure to understand how these affect your loan application, so you can increase your odds of getting approved. If you think any of the considerations mentioned above might hurt your chance of success, take steps to improve them. You may also consider borrowing from lenders who are more flexible in their requirements.