Things Lenders Look For in a Borrower

Wherever you try to file for a loan, there are a lot of similarities between different lending institution. Whether it be from a bank, a financial technology firm or a credit union. This is why it is important to know the key factors these institutions look for their borrowers so you would be able to properly gauge where you stand. Knowing this would help you work on the areas that you could be possibly weak. Ensuring that you have the qualifications needed will increase your odds of getting approved of a loan dramatically.

Below are the key indicator that you might be less of a risk for lenders so you could get your application approved:

  1. Net Worth 

Primarily, lenders need to know how much you’re worth to check if you will be able to afford to pay off the loans that you are trying to apply for. Sometimes, simply subtracting the total assets and the total liabilities would not suffice. Lenders would ask you to provide documents that could prove the real market value of the assets you have stated.

You should refrain from overstating your assets and understating you liabilities as this would result in an erroneous net worth. Lenders would appreciate it more as they would want to make quick decisions. Omitting or falsifying critical financial information is a sure way to lose a lender’s interes. As a general rule, a borrower’s net worth must be equal or greater than the requested loan amount.

  1. Credit history

A borrower’s credit history may sem self-explanatory but it is better not to make any assumptions and get the real details. As much as possible, you should know your credit reports from your previous loa provider and identify any derogatory credit marks.

Any potential blemishes in your report would usually require a written explanation. Better to ensure that you have resolved these before you go to your potential lender. Even if you have a writen explanation and the blemishes could be resolved almost immediately, you would not want to give your new potential lender a negative impression.

  1. Liquidity 

Generally, liquidity is defined as any asset that can be liquidated or converted in cash in a short span of time. These usually includes cash, stocks and bonds or any marketable security.

  1. Ownership Experience

Another thing borrowers often neglect is their previous ownership experience. This may not be monetary but it does reflect your ability to manage financial affairs. You should not only have high net worth or an adequate liquidity or even clean credit history, but you must also convince the lender that you are capable of making sound financial decisions.

Key Takeaway

These are the things that lenders often look for aspiring borrowers. Now that you know these, you should be able to gauge where you stand and start working on improving areas that you are short.