It’s a silly thing to ask – would you lend yourself money, if you were a bank?
How would you rate yourself in terms of creditworthiness? What criteria would you be using to determine the risk level of lending money to yourself?
While you may not be a bank, and that you are in fact, contemplating on applying for a loan for whatever purpose – investment, home or investment property, or business, it would help you to understand what criteria lenders take into consideration when evaluating loan applications from people like you. With such understanding, you can improve your chances of getting the approval for the loan you want to obtain from the bank or the non-bank lenders.
Universally, banks and lenders use a standard measure known as the 4 C’s of Credit in the Finance industry. What are these Cs?
How does your character impact the bank’s decision on your loan application?
Banks look at your “character” in a different way. Tangas Calvin Klein Baratos The bank wants to know how serious you take your financial obligations and commitments. They want to know if you can repay the loan which they get to make judgment by looking at your credit history. Boxer Calvin Klein Mujer Your credit history should answer their questions like:
- Can you repay the loan on time?
- Do you have the commitment to fulfill monthly obligations in full?
- How much, if you have used credit before, and what was the money used for?
- Do you have your financial facilities organized and in order?
- Does your credit history show that you pay your bills on time?
- Have you been labeled as a bad debtor? Or have you filed for bankruptcy before?
- Do you have a stable job?
- Do you have stable living arrangements?
- Have you made credit inquiries in the pats, and how many?
Answers to these questions will give the lender a solid picture about your “character” as provided by your credit file.
You may not be aware of it, but everyone who has applied for any type of finance – mobile phone account, credit card, personal or other loans, has a credit file under his / her name. Lenders obtain your credit file to evaluate and determine if you have a good or bad rating. Bikinis Calvin Klein Baratos In other words, your credit file will tell the lender if your “character” satisfies their requirements and that you are worth taking the risk against. The banks and lenders just want to make sure that you are able to repay the money they have allowed you to borrow for a certain period of time.
Veda Advantage is the company that runs your and everyone else’s credit file. By going to their website, you can request a copy of your own credit file which should contain pertinent information such as loans you have availed in the past, any bad credit references, judgments or bankruptcies, history of directorship in companies, if any, past addresses, employment history, etc.
Lenders, mortgage insurance companies have access to your credit file. Hence, it would help if you are able to view your own credit file in order to assess your chances of being adjudged with good or bad credit rating.
Banks and lenders are always interested to know what you can offer to them as security over the loan you are applying for. Loans are usually secured with collateral. Investors and homeowners usually offer property as collateral against the loan.
And depending on the offered collateral, lenders will assess its value and what would be the corresponding loan amount for the collateral offered. If you offer a small property, assessment would be different than if you offer a sizeable property.
Most banks and lenders in Australia don’t prefer specialized properties such as a serviced apartment, student accommodation or a small one-bed apartment offered as security against the loan. If they did, there might be restrictions or limitations on the loan amount they can approve or grant.
Banks and lenders may just be interested to look at the maximum LVR (Loan to value ratio) between 65% and 70%. Otherwise the loan could be packaged with a higher interest rate or a shorter loan term.
Location is another consideration. If the offered collateral is a property located in an upscale community in one of the major metropolitan cities, you’re likely to have better loan terms. Calvin Klein Bañadores Hombre Lenders prefer good city locations than properties in the regional or rural areas in Australia. For the banks, it’s important that they know what they are getting from the collateral you offered in the event of loan repayment default or failure. They need to be able to get their investment back plus all the other expenses they have incurred from the proceeds of the property if they have to sell it.
Are you capable to repay the loan? Among banks, this is known as serviceability. The bank or lender checks your income, if you are self-employed or PAYG, if you have rental income and any other assets or liabilities.
Banks will check how much income you make per month and how much you spend for general living expenses including rent or mortgage, utilities, groceries and food, credit card debts and personal loans. By having all the required numbers, the banks can determine if you have more than enough to spare and allocate for repayment of loan if you are approved for one. The banks need to see that without cutting on some of the regular obligations, you can still pay the loan without creating a hole in your pocket.
Banks are likely to favor those who have more than one source of income because that is some kind of assurance that your loan repayment is coming from somewhere fixed and determined and not dependent on any excess from regular employment income.
This is the last C – your capital or deposit.
This is gauged in terms of LVR. If you have bigger deposit, your LVR is lower. So if you want an 80% LVR, you should have 20% or more deposit. With this, you can easily land a credit facility. On the contrary, if your target LVR exceeds 80%, your loan application will have to go through a mortgage insurer for coverage of the bank’s risks.
This is not part of the 4 Cs but in summary, if you have a good understanding of these set of criteria, you know which areas you can improve before you even approach the bank or lender for a loan. If you have bad credit rating, you can rectify that by updating your payments to your outstanding debts.