What Do Banks Really Look For In Your Loan Application?

Important stuff to take note of.

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What Do Banks Really Look For In Your Loan Application?

Don't be a loan-reject!

This article was first published on Ringgit Plus. Visit the site for more articles on personal finance.

It’s never easy to get rejected when it comes to love or job applications, and loan applications are no different.

You’ll be waiting, hoping, and praying that your loan comes through and if it doesn’t, cue the crushing blows.

The decider of fate.To reduce your chances of being a loan-reject, your application needs to be a solid one. But how exactly do banks measure your financial status? What do they look for when it comes to approving loans?

Here are the three main areas that prospective lenders will focus on when reviewing financing applications:

#1 Annual Income and Type of Employment

The amount of money you earn in comparison to the debt you have indicates your loan repayment ability, but it is also tied to several areas of your employment.

Thus, your earnings are not the only point of contention as stability of income is also crucial to your application as well.

Therefore, even if you are making mad money as a freelancer or a sole-proprietor, when compared to a permanent employee with a fixed monthly salary, you’re likely to appear as the higher-risk applicant.

In addition, the high status of the company you work for (i.e. MNC or public-listed firm) could help bolster your application, whereas a newly-incorporated sole-proprietor may not hold as much sway.

#2 Savings and Other Assets

Having a healthy reserve in savings accounts and fixed deposits or owning other assets like property, stocks and bonds indicate that you have the means to repay your prospective lenders. This holds true regardless whether you are applying for an Al Rajhi personal loan or a HSBC Amanah personal loan.

Furthermore, if your accounts are tied with the bank you intend to borrow from, you might just have a leg up in securing a loan. Your application could be deemed as less risky because of their ‘right to set off’ your dues from the savings accounts (and other assets) you hold with them.

Therefore, if you already have an account with, say, CIMB Bank, your chances of being approved for a CIMB Bank personal loan may be higher.

#3 Credit History

While this is an obvious one, you might not be familiar with the exact aspects of your credit history the banks are concerned with. Did you know that being blacklisted by a utility company or leaving multiple savings accounts dormant could have an effect on your loan application?

It certainly can and while these very common infractions may not even ring a bell to you, it could be listed by credit reporting agencies and raise red flags on your report.

This is why it’s necessary to view your credit report before making any loan application so you can clear off your remaining debt as well as dispute false complaints that might have been made against you.

Bonus Tip: If your credit history is a little shoddy and time isn’t on your side to improve your status, do check out our article on ways to get financing even with bad credit.

Apart from these factors, banks may also look at a borrower’s status, as in their age, professional qualifications, titles held, community ties and the like.

More Things You Can Do To Get Your Loan Approved

Support your application with these handy tips:

1. Get a Guarantor

A parent or spouse with good credit standing can improve your application and perhaps even secure better loan terms. You might also consider a solid reference from your employer to give you a leg up for your application. If you’re running your own business, try to get a recommendation letter from reputable creditors who are willing to help you..

2. Choose Your Lenders Carefully

Apply to at least one bank with which you have a good relationship (i.e. one that you have actively maintained an account with or promptly repaid any credit issued or loan undertaken in the past). Not being a stranger can be beneficial especially if the prior conduct was positive.

3. Time Your Application

Avoid making numerous loan applications at the same time as it might indicate desperation for funds and could raise unwanted red flags on your credit report. If your loan has been rejected by more than one bank, wait at least a year before you reapply. Also, a good planning can give you time to gather assets and clear your credit history before you start reapplying.

Bonus Tip: The simple truth is that banks have different metrics for evaluating loan applicants, so if you’ve been turned down by one prospective lender – chin up, because another might approve your loan!

If you are looking at financing for a housecar or other personal ventures – be sure to first research on loan packages to get the most favourable rates, terms, and conditions on our comparison pagess

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