Getting a loan from a bank is associated with a number of difficulties. A potential borrower has to undergo numerous checks, including a scoring test and an analysis of credit history. At the same time, some people have minimal chances of getting approved – for example, if they missed payments on previous loans. What influences the likelihood of approval and how to increase the chances of getting a bank loan? Are there any alternatives to a bank loan and how to borrow money quickly?
What factors affect loan approval?
There are many factors that influence a bank’s decision to issue a loan. Solvency is assessed based on the results of the so-called scoring test. This is a program that evaluates the client’s answers given in the questionnaire, according to a special algorithm, and assigns each a certain number of points. If the applicant has reached the threshold, then he or she is approved for a loan.
In banks that provide express loans and MFIs, the scoring test is often the first and last. At the same time, there is no paperwork involved – you only need some kind of verification.
The answers are entered into the program from the words of the client, but cheating is not worth it. You must only provide correct information.
At the same time, it should be noted that payday lenders usually cannot issue a large loan. Usually, you can expect to a loan not exceeding $1,000.
When applying for a mortgage or car loan, you will have to fully confirm your solvency, provide collateral, make an initial payment, etc. In this situation, the applicant is assessed not only by the results of the scoring test but by analyzing his/her credit history, checking the guarantors and collateral, etc.
In general, the following factors affect the likelihood of loan approval:
- age of the borrower – banks rarely approve applicants younger than 21 and over 50 (but payday lenders are ready to approve you even if you are 18);
- loan amount – the more money you need, the more difficult it is to pass the scoring test;
- the ratio of the monthly payment to income – spending on a loan should not exceed 40% of the monthly salary;
- marital status and children – some banks see a positive moment in having a family since the borrower seems more responsible, and it is easier for two family members to make payments;
- availability of other loans – if you have too many loans already, you can forget about a new loan;
- education – it is believed that people with higher education are better at managing money;
- sources of additional income – this confirms that the borrower is a financially wealthy person;
- willingness to provide collateral;
- co-borrowers and guarantors.
At the same time, the presence of a person in the “risk group” automatically reduces his/her chances of getting a loan, even if he/she formally goes through all the criteria and manages to gain the required number of points during scoring testing. The security service has the right to reject such an application even without giving reasons.
Who is at risk?
In order to understand who is at risk, you need to understand that these people look like unreliable payers in the eyes of the bank. There are many reasons for this – some people have compromised themselves in the past, others may not be able to fulfill thier obligations in the future, even for reasons beyond their control. Typically this group includes:
- persons without official work;
- persons who delayed payments in the past – they have a much lower level of trust;
- persons who previously convicted or currently under investigation;
- bankrupts – officially they can take loans (albeit only with the permission of the manager), but in fact, they will not be given loans by any large bank;
- pregnant women or women on maternity leave, especially those raising a child without a husband;
- men of draft age who have not served in the army as they may be drafted into the ranks of the armed forces, and the payment of the loan will be suspended;
- students and pensioners (although some banks have developed special lending programs for them);
- entrepreneurs, as they have an unstable income;
- self-employed citizens, including freelancers, traders, private specialists, etc.
Often, banks include in the “black list” people whose professional activities involve risks – military personnel, stuntmen, etc. However, it is enough to take out insurance to neutralize the fears of the bank.
As for the rest of the borrowers’ categories, it is much more difficult for them to get a loan, but there are always chances – the main thing is to follow a number of recommendations.
How to increase your chances of getting a loan?
In order to have more options for loan approval, you can take the following steps:
- Become a salary client of the bank, because financial institutions are more willing to issue loans to their “own” borrowers: they are always aware of the payer’s income and in which case they will be able to collect the debt directly from the salary card.
- Purchase insurance – to protect your own life, health, insure against job loss, etc. The more risks you manage to neutralize with the help of the policy, the less the bank will have a reason to refuse to issue money. To save money, you can order comprehensive insurance, which includes a set of the maximum number of risks at reduced prices.
- Attract guarantors. Naturally, they must meet the basic requirements of the bank and have sufficient income. It will be added to the income of the main borrower, and this will help increase the credit limit and allow you to apply for a larger loan amount.
- Provide collateral. With a mortgage and car loan, the apartment and the car to be purchased become collateral. When taking a regular personal loan, the borrower can offer the property he/she has as collateral, for example, the same apartment or garage.
- Indicate sources of additional income. This can be anything: benefits, tax refund, second job, income from deposits or securities, pension, income from business or property rent, etc. The main thing is that they are declared and documented. Each bank individually determines which income is recorded as additional.
- Provide as many documents as possible. This will show the bank that the client has nothing to hide.
Naturally, when submitting an application, you do not need to conceal unreliable facts, for example, having a loan or a criminal record in the past.
How can I get a loan if I have bad credit?
But what if you cannot confirm the presence of additional income, or if you have a hopelessly damaged credit history, or is in a “risk group”? Can’t you get a loan from any bank?
Indeed, your capabilities will be severely limited. But there are several recommendations that you can follow even in the most hopeless situation:
- Start small. You don’t need to take out a mortgage right away. Take out a small loan and pay in good faith for several months. Closing the loan early after a series of payments without delay will improve your credit score and give you a few extra scoring points.
- Restructure existing commitments. They will be more willing to issue a new loan for refinancing. You will save on interest and get the right amount at your disposal.
- Get a credit card. This will help you avoid taking loans frequently and also improve your credit score (of course, if you pay off debts on time). Some lenders offer $1,000 even to new customers – and this is a rather large amount.
- Get help from a microfinance institution. Of course, you will have to overpay significantly, and you will have to get a maximum loan amount even if you have a bad credit history. But it will help you make an urgent purchase.
- Find a private investor. Such lenders rarely pay attention to official income, criminal convictions and other negative factors. They give an assessment of the client’s creditworthiness based on personal impression, but it is still worth stocking up on some documents. Amounts, interest and repayment schedules are negotiated individually. The agreement is confirmed in writing, and the paper has the same legal force as the agreement with the bank, so you will have to repay the loan in any case.
- Borrow money online. There are many websites offering to borrow money from microfinance organizations or private investors. In all cases, you will need to confirm your identity and conclude an agreement. However, this method is much faster: by applying for a short-term online, it will be possible to get the funds remotely within several hours.
If you decided to get a loan from a bank, then we recommend that you contact a small bank. As a rule, small banks are fighting for each client and are ready to offer individual loan terms.