Top 5 Things Banks Look for in Loan Applications
When applying for a loan, you will be provided with loan application forms. In these forms you will need to provide your personal information. Banks look forward to making profits from the interest they charge on loans. Thus, for this reason, they aim at reducing the risk of bad loans as much as possible. Some of the most important information that banks look out for include:
1. Cash Flow
This information must be clearly mention since it is the primary determinant of whether the loan application will be approve or decline. Besides the information you fill in the application forms, banks will require you to provide supporting documents. This can include the latest pay slips for salaried individuals and bank statements for people in business. In some cases, the net monthly income is use to determine the amount of monthly repayments and subsequently the maximum amount of credit that will be approve.
2. Credit History
This is another common field that must be completed in loan application forms from all lending institutions. The information is backed up by bank statements. These statements will state the amounts of money that goes into loan repayments. In addition, it also reflects loan statements which can be obtained by the client from the lending institutions. This will help determine the credit rating and repayment ability. This is because too many loans, for example may strain a person’s financial capacity. In the recent past, most countries have introduce a centralize system for banks that allows them to access their clients’ credit history from other institutions.
3. Available Collateral
Secured loans require collateral which has to be of the same or higher value to the amount being borrowed. This will be held by the bank until the loan has been fully repaid. It is also a way of minimizing the risks that the bank may incur should the loan become a bad debt. The lifespan of the collateral should exceed the loan repayment time limit. This is so that it does not become obsolete before the loan has been fully recovered. The borrower will also be required to prove that he has full rights to the property ownership such that no other party will claim it. Where applicable, banks usually hold the original documents affiliated to the collateral until they have fully recovered their money.
4. Physical and Work/Business Address
Lenders require this information so that they can physically track the client should they default. This is however not a strong security because people change their locations and jobs on a daily basis. It is usually supported by utility bills and letters from relevant authorities.
These are just a few of the important information collected from the client during loan applications. Banks are usually very keen on this and any slight discrepancy between what is mention in the application forms and the supporting documents guarantees a decline.
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