At some point in our life, we would need to inject capital for various reasons like personal, education, business, or leisure. Most of the time, we secure a loan from a reputable bank or a non-banking financial institution to fund this shortfall.
Nowadays, there are different types of loans available. Personal loans, business loans, home loans, and auto loans are the most sought-after. They are designed to provide for our daily necessities. Before you a loan can be granted, it comes with various requirements first. If you are wondering how to get qualified for a loan, check these few tips.
Before you can get approved for any kind of loan, you must provide certain documents to the lender. These documents are proof of your personal and financial information. Requirements may vary from one lender to another but these are the usual documents that lenders ask from the borrower, on top of the application form.
- Proof of identity. This is a mandatory requirement every lender asks. A valid ID helps the bank identify the borrower and perform background checks on its applicants. For home and auto loans, you may also need to prepare Income Tax Returns.
- Proof of residence. A proof of your living situation helps a lender determine the stability and security of your lifestyle is. Usually, you can use the utility bill, lease or rental agreement, or a voter registration card for this.
At the time of application, additional documents which include ownership deeds, balance sheets, and salary slips and/or bank statements may also be needed as part of the requirements.
A good credit score and history
Primarily based on a credit report, a credit score is an analysis of a person’s creditworthiness. Many lenders prioritize borrowers with a good or excellent credit scores equivalent to 690 and above. For people with bad credit rating, some lenders may still accept their application but with lower amount, tighter conditions, and higher interest rate.
Your credit score is a major factor in the amount of loan that can be granted, as well as the interest rate applicable. To qualify for a personal loan, a minimum credit score of 610 to 640 is needed. Credit score above 750 is considered good and banks will consider this to check on your reliability of repayment.
Steady source of income
Lenders determine how you have come along through your credit score and credit history. At the same time, it is important for them to know where you’re heading to which is why your current and future source of income also matter.
People who have a steady employment, haven’t changed jobs too recently or too often, and present no gaps in their employment history, are preferred by lenders. For business owners, a proof that your business is doing well and good is needed by the lender.
Co-maker or guarantor
A guarantor is often required by the lender especially if you are planning to borrow a huge amount of money. A guarantor agrees to pay a borrower’s debt in the event that the borrower was not able to fulfill the loan obligations.
A co-applicant with a good credit score is an advantage. If you want to borrow larger amounts and for longer tenures, having your parent, spouse or sibling as a co-applicant splits the liability and represents a lower default risk from the bank’s perspective.
The process of applying for a loan would be much more efficient if you would be able to satisfy all the basic documents and other requirements the lender needs before applying for a loan.