Four Insider Secrets Your Lender Won’t Tell You About Loans Approvals/Rejections

loansThe couple of hours, days, or weeks between when you apply for a loan and when you get a response are probably the longest agonizing experiences you’ll ever have. Once you send in the application, you’ll start second-guessing yourself thinking about how you should have requested for a higher/lower amount. You’ll also agonize about how could have provided better answers/responses when you were filling out the loan application form.

However, no matter how well prepared you think your might be, the decision to approve or reject your application is at the sole discretion of a loan officer. Interestingly, lenders often reach a decision on a loan application using an interesting mix of criteria. This article provides insight into some of the best-kept secret criteria that lenders use to approve or reject loan applications.

1.    There’s more to your credit score than you know

It is no longer news that lenders will consider your credit report before they make a decision to approve to reject your loan application. However, the secret that most people do not know is that there is more to your credit score than meets the eye. Many people erroneously assume that their credit report is a function of their payment history and their outstanding credit. However, nothing could be further from the truth.

You credit report shows your credit score, your credit card history. In fact, the credit report conveys extra information on your preferences for cards with fees or whether you tend to apply for cards with no annual fees. Your credit report also provides a snapshot of your job history, your income, and the number of dependants you have, and other financial responsibilities that you might have. In essence, your credit report is filled with many different parts of a larger puzzle that lenders use to get insight into your creditworthiness.

2.    The Interest rate is just one of many fees

There’s no free money and a loan is certainly not free, irrespective of ads and marketing pitches to the contrary. Lenders often try to attract potential lenders by dangling mouth-watering offers of low interest rates. However, a low (or even zero) interest rates doesn’t necessarily mean that the lender will lend you money at no cost.

Lenders make profits on the loans they give to you by charging an interest on the principal. In cases when the lender offers a low interest rate, you can expect to pay a high origination/service fee, which could be as much as 5% of the total approved loan amount. More so, other lenders often work different types of upfront and hidden fees into the loan repayment schedule. You should also check the fine print on penalties for late payments.

3.    Pre-approval letters don’t mean a thing

Many people often fill out a loan application form because they got an email or letter telling them that they’ve been approved for a loan. However, pre-approval letters or emails don’t count for much when you are apply for a loan because a thousand more people probably got the same letter. The Internet has increased the flow of information and the flow of information can be tracked legally or illegally.

A simple Internet search on loans could show lenders that you might be shopping for a loan and they could leverage that information to send you an offer. You should consider pre-approval letters as another unsolicited offer and you should know that you’d still need to justify your creditworthiness before you are given a loan. Not taking pre-approval letters at face value will help you trim your expectations in order to avoid being disappointed if the loan is not approved.

4.    Age is not just a number

Lenders will rarely admit to this, but they look at your age before they decide on your loan application. However, many potential borrowers often think that an excellent credit score and solid repayment plan are the only things they need in order to get a loan. Lenders are in the business of making money and they often try to avoid situations in which they won’t be able to recover their principal or its interest. The best-kept secret in the finance industry is that lenders discriminate between borrowers based on age.

If you are very young, lenders often avoid giving you a loan because you could be impulsive, wasteful, and their money might end up as frozen credit. Conversely, banks might disqualify you for a loan if you are older than 65 even if you have excellent credit. An aged borrower is past the prime of their life, they could suddenly die, and the lender might never be able to recover the borrowed funds.

 

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