With the natural disasters and misfortunes happening all year round, it’s almost inevitable not to get a calamity, house, or salary advance loan, especially if it’s to rebuild your home or as emergency money when the going gets tough. Apart from the common qualifications needed to apply for a loan–such as stable employment status and zero negative financial records–here is a list of other criterion that lenders use to validate the borrower’s background.
Capability to pay
Checking the capacity of the loan applicant is the initial stage of most lenders’ background checking process. They evaluate whether the applicant can pay the amount based on his working status, education, skills, paying experience, and credit history.
The more financially stable the borrower, the higher the chance of being approved. From here on, if the bank or lending firm noticed that the person doesn’t have the capacity to pay back, banks will automatically reject your request for loan.
Condition of the Industry
Another criteria is the condition of the industry of the applicant, be it work or business. Based on the economic condition of the industry, the creditor will determine whether it has an effect on the debtor’s capability to pay.
For example, those working on contractual basis may find it hard to get a loan approved because of the instability of their work condition. Same with businesses applying for loan, but the industry shows less success rate due to the economy.
Collateral of the debtor
Collateral is the item, whether physical or non-physical, that the debtor pledges as a security of repayment. Physical collateral ranges from house to car to jewelry that needs to be appraised. The non-physical ones don’t require the debtor to pawn anything, but needs to pay higher than those with collateral items.
Banks and other creditors also investigate the legitimacy of the collateral to ensure that they won’t have any issues in case they assume ownership of the possession.
Credit source is usually reviewed for applicants asking for a loan to start their business. By reviewing the business plan and their funding, lenders get a feel of how responsible the debtor can be in handling the money and repaying it afterward.
The creditor usually check the balance, structure of capital, profit and loss report, as well as the return of equity and return of investment status of the business.
Character review and reference
Similar when you’re applying for a job, reviewing the character of the applicant provides an insight to the bank of the applicant’s attitude towards money and repaying debts. They usually review your personal data based on family background, habits and hobbies, educational and work history, personality, as well as how people perceive you to be based on your character references.
Apart from the items listed above, insurance firms and big financial lending companies are now using social media to do their background check on every applicant. Based on a May 2013 article on The Economist, lenders worldwide are now maximizing Facebook, Twitter, and other social platform to review potential borrowers, before approving their loan applications.
Once you’re confident that you’ve passed most of the items above, then you can proceed in applying (without any hesitation) for a bank or government loan.