Broker Check

Here's What It Takes to Borrow

| January 02, 2019
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When you apply for a loan, remember that lenders look for three ingredients that will lead to a favorable approval of you as a borrower. 

Character is primary. Lenders look at credit reports as evidence of your record of repaying. They also look at your occupation and the degree of responsibility you have been asked to assume. Often "character" encompasses education or training: How well are you going to do your job? Is it likely that you will continue in the same line of work? Are you stable financially? 

Capacity to repay. Lenders look at all income to see if there is enough "excess" cash to make loan payments. In addition, the lender may also look at the income of co-borrowers if more than one person is applying for the loan. 

Collateral to support the loan. Lenders today do not make loans based solely on collateral value, but the presence of solid collateral can be a determining factor in loan approval. If a lender fails to take collateral upon origination of a loan, and the borrower fails to fulfill his or her obligations, it is unlikely that collateral will be obtainable later. Collateral provides the "Plan B" lenders count on in the event "Plan A"--the normal method of repaying the loan through systematic or lump-sum payments--fails. 

In addition to the "Three C's" above, lenders like to know that the borrower has an appropriate purpose for the money. You should have a good answer to the question, "Why do you need the money?"  Many lenders believe that some customers are surprised when bills come in and they have no cash to pay them. This, of course, suggests a lack of planning. Make certain that you have a purpose in mind. Certainly bill consolidation and better use of income is a legitimate need. 

If you are turned down for a loan, you are entitled to know why. It may also be wise to apply to other lenders. Once you have found a lender who seems to understand your needs, learn how to work with him or her. The key ingredient for a workable borrower- lender relationship is a sensitivity to each other's needs, upon which you can build a mutually profitable future for years to come.

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