5 “Cs” that online money lending companies consider while sanctioning loan
Are you planning to borrow money for your settling personal or business debt? If yes, chances are you are wondering the factors online money lenders consider for sanctioning a loan. A lending company's ultimate objective is to find out whether you are a favorable and unfavorable risk. Also, it is a smart call to manage your credit score before applying for the loan. Make sure that your credit score is high. As it is the only factor that lending companies will use to determine your capacity and credit stability to repay the loan.
That is not all! There are several other factors that money lenders consider while assessing your financial profile. It can comprise anything from your overall financial health, income slab, and credit and payment history. To know more, you can check out Liberty Lending.
However, different lending companies evaluate the borrower’s credit history in multiple ways! But most will consider the 5 “Cs” of credit, as discussed below.
It denotes the cash or money that is accessible to you through investments, savings, or assets that you can make use for loan repayment. Your household income gets counted as the primary repayment source. But when you highlight an extra income to an online lender, it suggests that you have to save capital, so that you can manage all your finances carefully. Hence, there are fewer chances of credit risk with you. Also, the extra money can help you whenever there is an emergency, for instance, a sudden job loss or a business failure.
Simply put, it is something that the borrower’s own and it gets used for line of credits or loans. It usually gets used for the secured loans, for instance, a HELOC (Home Equity Line of Credit) or auto loan. It means you have to put forward something which you own.
Also, the collateral gets a value allotted to it. Any debt you still have to repay will get subtracted from the overall cost. The remaining amount is the equity which online lenders consider as an essential aspect in the lending decision making. For instance, when it is about a home loan, the lenders can possess a borrower's residence, if they default the mortgage. They will receive an appraisal for the house, to get a precise value of all that's worth to ensure that it is worth equal to the borrowing amount. Your collateral acquires an appraised house value.
It refers to your monthly earning! And the companies will check your earning consistency for a specific time. Lenders want to make sure that you can make the payments. For this, they examine the income, income stability, work history as well as the earning potential. When they get convinced that you can repay the borrowed debt, they will sanction the loan.
Online money lending companies conduct this process, by assessing the DTI (Debt to Income Ratio), that compares the overall debt amount that you owe every month with the total earning amount. When there's an increased DTI, it indicates an increased credit risk. It shows that it might be challenging for you to repay the loan amount. With advanced assessment tactics and tools, these companies today can estimate a borrower's capacity to make timely payments during the loan tenure.
It might comprise the interest rate for loans or a credit card. Also, it could be the interest levied on the money you borrow, when lenders mull over accepting your loan application. The conditions might also comprise the lender asking the way you plan to make use of the money that you borrow.
The overall amount you intend to borrow and how you plan can impact the lender's decision. The other conditions that might get considered comprise of the present economic state. It also represents the different lending trends prevalent in the financial industry. For instance, back in 2008, it reflected the Great Recession impact on the mortgage industry and other allied circumstances.
- Credit History
It is one of the most important aspects to consider. Credit history plays an essential part in making the online money lending company decide in your favor. They need to assess your credit history to ensure whether you qualify or don't for a credit card or loan. Simply put, the credit history is the financial track record that highlights the way you have regulated credit as well as made necessary payments and repayments over a stipulated time. Three credit reports can reflect all the essential facts the company need to check. It also provides essential data concerning past lenders.
This information can vary amongst the various credit reporting agencies. However, it will still comprise of similar data, for instance, the lenders name that provided the credit, the credit types, the payment history, and many more. Today, several online lending brands prefer a favorable payment industry. They also prefer timely payments, no violation, and low amounts. Your credit history gets captured in one number, called the credit scores.
The credit score is the first thing that online money lending companies consider when they evaluate credit history. When you possess an excellent credit score, the chances of a loan sanction, even if the amount is a big one is more. The repayment terms are easy, and the rate of interest too is favorable and fixed. You have several types of credit scores. FICO score is one of the popular types that you need to be aware of.
There are several ways in which you can enhance your credit scores. One of the best ways is to make timely payments. Also, you need to cease the habit of taking out a loan when you already have one.
Furthermore, today, many small business owners, sole proprietorship firms, and even individuals opt-in for personal loans, and repay the same between one and four years. Recently, borrowing has undergone a significant shift. Today, people like to opt-in for other online lending choices than walking into a bank. People want to explore new financial discoveries and financial help options. Make sure that you join hands with the best online lending service provider before you give the final nod.